November 22, 2022

Daily Report 22/11/2022

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There were no major domestic moves during Monday with Sterling moves dominated by global developments. The overall tone surrounding risk appetite remained weaker which continued to sap confidence in the UK currency. Domestic equities demonstrated some resilience which provided an element of currency support there were further expectations that the Bank of England would adopt a relatively dovish stance which sapped underlying currency support. Sterling recovered in early Europe on Tuesday as the dollar retreated. The latest UK government borrowing data recorded a deficit of £13.5bn which was lower than consensus forecasts, but £4.4bn higher than the October 2021 figure which will maintain unease over medium-term trends.

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In comments on Monday, ECB chief economist Lane stated there would be a further interest rate hike at the December meeting, but that the platform for a 75 basis-point rate hike is no longer there. He added that the more you’ve already done on a cumulative basis changes the pros and cons of any given increment. The overall rhetoric was notably dovish and was important in undermining Euro demand during the day. ECB council member Holzmann was more hawkish with comments that he would support a 75 basis-point hike if the situation remains the same, but markets expected that the core bank members would back a smaller hike at the December meeting which continued to hamper the single currency.

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The Chicago Federal Reserve nation activity index weakened to -0.05 for October from a revised 0.17 the previous month and was in line with consensus forecasts. Cleveland Fed President Mester stated that the bank is not anywhere near stopping rate hikes and policy is barely in restrictive territory, although it does make sense to slow the pace of hikes a bit. She added that there has been some positive news on inflation, but a sustained run of positive news is needed. San Francisco head Daly stated that she was not ready to say what the central bank should do at the December meeting.

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