October 24, 2022

Daily Report 24/10/2022

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Sterling lost ground following the latest batch of UK data releases on Friday with fresh concerns over the outlook for consumer spending following the slide in retail sales. Weaker risk appetite was also a key element during the day and a slide in equities helped trigger sharp sustained Sterling losses into the New York open. Overall, Sterling dipped to lows against the dollar as overall confidence in the UK and global economy remained weak. There was a strong recovery later in the session as equity markets posted a sharp recovery. In this environment, the UK currency rallied before fading rapidly again in very choppy trading. The latest CFTC data recorded an increase in short Sterling positions to over 50,000 contracts from 39,000 previously with the potential for short covering. Moody’s changed the UK credit rating outlook to negative for stable, reinforcing unease over UK fundamentals. Markets continued to monitor political developments closely and Sterling jumped in early Asia as former Prime Minister Johnson announced that he would not stand in the leadership contest with Sunak potentially confirmed as winning on Monday. Risk appetite also held firm which helped underpin the UK currency.

Key Data 

9.30 S&P Global/CIPS Services PMI (Oct) Exp. 49 Pre. 50

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Euro-Zone consumer confidence recovered slightly to -27.6 from -28.8 the previous month and above expectations of -30.0. The Euro posted further gains after the European close as the Bank of Japan intervened to support the yen. CFTC data recorded a net increase in long dollar positions, but there was a net increase in long Euro positions, limiting scope for further Euro buying.

Key Data 

8.30 German S&P Global/BME Composite PMI (Oct) Exp. 45.3 Prev. 45.7
8.30 German S&P Global/BME Manufacturing PMI (Oct) Exp. 47 Prev. 47.8
9.00 S&P Global Composite PMI (Oct) Exp. 47.5 Prev. 48.1

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US Yields retreated from peak levels which triggered a dollar correction. A recovery in equity markets curbed potential dollar demand with a sharp correction. The dollar maintained a strong tone into Friday’s New York open with wider US currency support and a fresh surge in US bond yields. With no intervention by the Bank of Japan, the dollar surged to fresh 32-year highs. The latest reports from the Wall Street journal suggested that the Federal Reserve was aiming for a 75 basis-point rate hike at the November policy meeting. According to reports, there are also divisions within the central bank whether to signal a smaller rate hike at the December policy meeting. Some are concerned over the potential impact on the economy while others are concerned that inflation isn’t falling. San Francisco Fed President Daly stated that she wants to avoid an unforced tightening by over-tightening and that the central bank is now at the stage where it needs to be thoughtful. She added that the Fed also needs to take account of synchronised global central bank tightening. The report and comments overall was considered as slanting towards a more dovish stance and US yields retreated sharply from highs as Treasuries rallied.

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