IFX Market Report: Friday 16th December 2022

Yesterday saw the pound weaken considerably even after we saw an interest rate hike for the ninth time in a year. The rate vote was 7-2 in favor of a 0.5% rise, however earlier this week there was a slight chance of a 0.75% hike as strong UK consumer spending countered the BOE inflation target. However lower than expected inflation meant that the 0.5% was enough to satisfy the majority of the BOE policy committee. The base rate in the UK now stands at 3.5%.

Despite the rise Sterling fell after the BOE comments that although further rate hikes will follow they will likely peak at 4.5% now, compared to 5%+ which was mentioned after the Liz Truss mini budget back in September. GBPUSD moved from 1.2350 to around 1.2160 immediately after the comments, and this morning the pair briefly touched 1.2110 before rebounding to around 1.2190. GBPEUR was around 1.16 and currently resides around 1.1450.

The Euro strengthened across the board yesterday as the ECB also hiked rates by 0.5% to bring the base rate to 2%, the difference between the comments of the ECB and BOE were that the ECB will look to further hike rates by at least 50 basis points in both February and March. President Lagarde stated that they have a long way to go to bring inflation down from the current 10% and reach the 2% target which will likely not be achieved for 3 years, therefore they need to hike rates further to squeeze economic growth.

The Euro pushed to 1.0740 its highest level since mid April after the announcement. However positive US Jobless claims data coupled with Joe Bidens comments on positive inflation and US Economic growth pulled the dollar back slightly against the Euro and furthered the moves against the pound.

GBPUSD resides at 1.2189

GBPEUR resides at 1.1464

EURUSD resides at 1.0634

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