September 23, 2022

Daily Report 23/09/2022

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Sterling posted net gains ahead of the Bank of England policy decision as yen intervention triggered wider dollar losses. The Bank of England increased interest rates by 50 basis points to 2.25% at the latest policy meeting which was in line with expectations, although there had been considerable speculation that the bank could opt for a 75 basis-point hike. Three members of the committee did vote for the larger hike while new member Dhingra backed a 25 basis-point hike due to fears over the outlook. The bank lowered its peak inflation forecast to 11% due to the energy guarantee scheme, but also noted that there would be a significant impact on demand and pointed to major uncertainty over the outlook, especially with the government set to announce a major fiscal stimulus on Friday. In this context, the bank will assess the situation fully at the November meeting.  Sterling dipped lower in an immediate response to the decision with markets scaling back end-2022 rate forecasts, but the currency was resilient to some extent with expectations that the bank would have to tighten more substantially over the next few months.

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The Euro staged a strong rally in early Europe on Thursday as intervention to boost the yen against the dollar triggered wider losses in the US currency. The Euro briefly moved above a key level but failed to hold the gains as over confidence in the Euro area remained weak. There were further concerns surrounding the Ukraine situation and energy-supply issues with markets also waiting for the weekend Italian election with expected gains for right-wing parties. Euro-Zone consumer confidence dipped to -28.8 for September from -25.0 the previous month and below consensus forecasts of -25.8.

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US initial jobless claims edged higher to 213,000 in the latest week from 208,000 the previous week, but slightly below market expectations of 218,000 while continuing claims declined to 1.38mn from 1.40mn. The data suggested a solid labour market which provided net support for the US currency. Overall confidence in the Euro-Zone outlook remained weak and overall Federal Reserve monetary policy continued to support the dollar.

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18:00 Fed Chair Powell Speech