IFX Market Report: Tuesday 20th September 2022

This Tuesday, Liz Truss admitted a new trade deal with the United States is unlikely in the “short to medium term” as pressure mounts on the British economy to avoid recession. The UK economy grew by 0.8% in Q1 but inflation pushed back the economy to shrink by -0.2% in Q2. Q3 so far has seen the British economy shrink -0.6% in June and grow again by 0.2% in July, and therefore standing at a net shrinking of the economy by -0.4% so far before the announcement of the figures for August.

The British pound also plunged in recent weeks against the dollar and the euro as it reached a 37 low against the dollar on Wednesday last week to $1.1351. Cable plunged by over 16% already this year as it opened the year at 1.3531 and now stands around 1.1429 as of yesterday’s closure. The Bank of England is set to review its interest rate decision this Thursday as markets expect a 50 basis points increase to 2.25% for the base rate.

The Federal Reserve of the United States is also set to review its interest rate decision with market expecting another 75 basis points increase to 3.25%. Chairman Jerome Powell warned that the Fed would continue to increase the rate as long as inflation stays above the 2% target, despite signs of a slowdown of inflation last month as it dropped to 8.5%.

Sweden’s central bank is also trying to fight rising prices and launched at a 100 basis points rate hike, taking its base rate to 1.75%. The Swedish central bank says, “inflation is too high”, and warns that inflation is “undermining households” purchasing power.

The Bank of Japan and the Swiss National Bank are also both due to announce their interest rate decision on Thursday after the Fed’s announcement. The Bank Japan is expected to remain very conservative and leave the rate as it is at -0.10%, while the Swiss National Bank is expected to increase its base rate to 0.50%, in positive territory for the first time since 2015 when the SNB introduced negative interest rates.

Cable remained stable as yesterday was a bank holiday for the HM Queen Elizabeth II’s funeral in the United Kingdom. GBPUSD opened at 1.1417 and closed at 1.1429.

GBPEUR followed a similar trend. The pair opened at 1.1398 and closed at 1.1403.

EURUSD also remained stable. The pair opened at 1.0012 and closed at 1.0022 yesterday.

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