September 27, 2022

Daily Report 27/09/2022

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Sterling managed to regain some further ground in early Europe with a recovery from heavily-oversold conditions after the crash seen in Asia. The UK currency posted further gains into the New York open with support from strong speculation that the Bank of England would issue a statement later in the day. There was also speculation that the bank would announce an emergency increase in interest rates. The UK currency rallied to highs against the dollar before fading. UK Chancellor Kwarteng stated that the government will set out its medium-term fiscal plans and forecasts on November 23rd. The Office for Budget Responsibility (OBR) will also release updated forecasts for growth and borrowing requirement on the same day.

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The Euro rallied to highs against the dollar in early Europe on Monday as the dollar was subjected to a correction while volatility remained high. The German IFO business confidence index dipped sharply to 84.3 for September from a revised 88.3 the previous month and well below consensus forecasts of 87.0. The current conditions component declined to 94.5 from 97.5 while the expectations component dipped to 75.2 from 80.5 with both figures well below market expectations. The IFO stated that the economy is facing recession with almost all sectors in the red and particular difficulties in energy-intensive industries. The Italian general election result secured only limited market attention during Monday with attention focused elsewhere, but there were still important reservations over the impact of a right-wing victory. In particular, markets will be looking at relations between a new government and the EU.

Key Data 

ECB’s President Lagarde speech

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An aggressive US Federal Reserve which has raised interest rates four times this year, for a total of 2.25 percentage points, has drawn investors to pile into the USD. In contrast, the euro’s status has been knocked by its closeness to the war in Ukraine and rising energy costs, while the yen has dropped due to loose Japanese monetary policy, and the pound has declined amid dismal economic data pointing to a UK economy on the brink of recession. The USD’s status as a safe haven has been boosted by global economic slowdown fears and expectations of a hawkish Federal Reserve (Fed). However, more recently, fears of a recession in the US have pulled the greenback off its highs.

Key Data 

Durable Goods Orders(Aug)  Prev -.01% Exp – 0.4%