IFX Market Report: Friday 3rd February 2023

The last few days have been dominated by Central bank interest rate moves and commentary regarding where they will go in the near future.

Yesterday saw the BOE vote 7-2 in favour of a 0.5% hike, bringing the base rate to 4% overall, and the 10th time in a row where a rate hike has taken place. Comments from policymakers shortly after included ‘Global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the United Kingdom. Wholesale gas prices have fallen recently and global supply chain disruption appears to have eased amid a slowing in global demand.’

The BOE believe that Inflation will fall sharply this year and predicts a much shallower recession than feared. The rate hike would normally have strengthened the pound, however the 0.5% was priced into the market already, and with it now looking unlikely that there will be further hikes the pound took a tumble, falling from around 1.2390 this morning to 1.2230 late in trading.

The Eurozone also saw a rate hike of 0.5% today bringing their base rate in the range of 2.5% and 3.25%, the highest since November 2008. This hike was also priced in, however comments from policymakers after which stated that there will be a further 0.5% hike in March strengthened the Euro across the board. The Euro was sitting around 1.1330 against the pound but dropped just north of 1.12 shortly after. Whilst EURUSD strengthened briefly over 1.10, the highest level since the beginning of April 2022.

On Wednesday the US Fed increased rates by 0.25% bringing their base rate range between 4.5% & 4.75%. This was the smallest hike in a year, but Federal chairman Jerome Powell was quick to state that “Inflation has eased somewhat but remains elevated, and ongoing rate increases will be necessary to bring the price down. We covered a lot of ground, and the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do,”

Inflation in the US fell to 6.5% from 7.1% the previous month, and significantly down from the 9.1% peak seen in June. However the FEDS target rate of 2% is still way off and the tight labour market has driven wages up which threaten to prompt inflation.

All eyes will be fixed on US Non Farm Payrolls this afternoon with other data including CPI data from UK and Eurozone.

GBPUSD resides at 1.2192

GBPEUR resides at 1.1189

EURUSD resides at 1.0893

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