IFX Market Report: Thursday 19th May 2022

Stock markets resumed their bearish trend strongly as investors worried about global inflation, China's zero COVID policy and the war in Ukraine, while the dollar and especially safe-haven currencies like the yen and franc Switzerland have been favoured by investors seeking safety.

Weak U.S. housing data on Wednesday heightened fears of a slowdown, and Fed Chairman Jerome Powell had stepped up aggressive rhetoric the previous day by saying the U.S. monetary authority would push interest rates higher than necessary to stem a surge in inflation that he says threatens the foundations of the economy. Mr. Powell's position makes it difficult for the US economy to emerge smoothly from the crisis, given the long lags between changes in monetary policy and changes in inflation. The poor outlook for the US economy supports the dollar and safe-haven currencies, as investors seek to protect themselves.

In the United Kingdom, the CPI (Consumer Price Index) came out at the expected levels confirming the challenges the UK is facing. On a month-to-month basis the CPI saw an increase of 2.5% compared to the 1.1% of the previous month, as well as an increase of 9% compared to the same month last year, the highest level since 1982. As a higher energy price cap was set in April, around three quarters of the rise in inflation that month came from higher electricity and gas bills, according to the Office for National Statistics (ONS).

In the Eurozone, CPI data showed a smaller increase than in the UK on month-to-month basis with only a 0.6% increase, coming down from the 2.4% increase of the previous month. However, compared to the same month last year, CPI figures show an increase of 7.4%, with inflation being the main topic from the ECB Financial Stability Review report that came out yesterday.
The attractiveness of safe haven currencies with bad stock markets performance and poor economic results, also saw the CHF jumped significantly. The euro against the Swiss franc collapsed yesterday and went down to 1.0287, with projections showing that the fall could continue towards 1.0189.

Cable went down yesterday amidst the attractiveness of the USD as a safe haven. GBPUSD opened at 1.2421 and close slightly under 1.2337.
GBPEUR remained stable yesterday. The pair opened at 1.1792 and closed at 1.1793 but coming down from a high of 1.1852 after the closure of the previous day as both economic areas showed poor results in CPI data.

EURUSD also saw the dollar gain strength with the pair opening at 1.0517 and closing at 1.04611.