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On September 15th, European Central Bank (ECB) Executive Board member Schnabel stated that the ECB should maintain current interest rates given the upward risks to prices. Schnabel noted that small deviations from the 2% inflation target should be tolerated and that the ECB is currently in a favorable position. She stated, "Monetary policy should remain stable. Upward inflation risks dominate, with tariffs, services inflation, food inflation, and fiscal policy all likely contributing factors." Sources familiar with the matter stated that unless the eurozone experiences another major shock, borrowing costs are expected to remain at current levels for some time.On September 15th, Trump posted on Truth Social that companies should no longer be forced to report quarterly, subject to approval by the U.S. Securities and Exchange Commission (SEC). Instead, they should report every six months. This would save money and allow managers to focus on running the company properly.U.S. Treasury yields were steady or slightly lower in midday European trading on September 15th, as investors were reluctant to take new positions ahead of a Federal Reserve rate cut. "Investors are waiting to see whether inflation dynamics and Fed guidance will further shift expectations," Exness analyst Van Ha Trinh said in a report. The financial market strategist noted that any surprises in the pace or scale of policy easing could lead to sharp reactions in yields.Trump: Companies should no longer be forced to release quarterly reports.On September 15th, HSBC foreign exchange analyst Paul Mackel wrote in a report that if the Bank of England maintains its current pace of quantitative tightening at its meeting on Thursday, putting upward pressure on UK gilt yields, the British pound could fall. The Bank of Englands latest market participant survey showed that median expectations indicate that quantitative tightening will slow to £72 billion over the 12 months starting in October. Over the past year, the Bank of England has reduced its holdings of UK gilts by £100 billion. Mackel noted that given that the foreign exchange market is closely monitoring changes in long-term gilt yields in countries with high fiscal burdens, including the UK, this weeks Bank of England decision on quantitative tightening could have an impact on the British pound.

GBP/USD continues to trade below 1.2000 as risk aversion increases, with the US ISM PMI in focus

Alina Haynes

Jan 04, 2023 14:53

GBP:USD.png 

 

In the early Asian session, the GBP/USD pair has moved below the psychological support of 1.2000. Due to a risk-averse market mentality, the pound has been unable to surpass 1.2000. A dramatic fall in investors' risk appetite prior to the release of the United States ISM Manufacturing PMI data and the Federal Reserve's (FedDecember) monetary policy minutes boosted the United States Dollar.

 

The S&P 500 remained on a downward trajectory on Tuesday, showing the market participants' continued aversion to risk. The US Dollar Index (DXY) achieved a two-week high of roughly 104.40 after recovering strongly from 103.

 

Investors are afraid that the Federal Reserve (Fed) may be compelled to adopt additional policy tightening in order to confront persistent inflation. Bill Dudley, a Bloomberg analyst, identified three focal points for the Fed in CY2023. The labor market's tight conditions and low unemployment rate are the primary driver of wage inflation. Second is the underinvestment in the oil and gas sector, which could worsen inflation given Russia's ability to weaponize its control over major oil supplies. The third aspect is the performance of the budget deficit, which is projected to reach approximately 5% of Gross Domestic Product (GDP) in 2023.

 

In the meantime, investors await the release of the US ISM Manufacturing PMI, which is expected to be lower at 48.5 compared to the previous release of 49.0. While the New Orders Index is expected to be higher at 48.1, compared to the previous release's 47.2, the data is expected to be down at 47.2.

 

The diminishing appetite for corporate debt raises red flags for the United Kingdom's economic outlook. 70% of UK CFOs believe credit to be "expensive" in light of the Bank of England's (BoE) most severe tightening policies in more than three decades, according to a quarterly poll conducted by Deloitte CFP and cited by Reuters. In the meantime, the British government has withdrawn the obligation for Chinese newcomers to undergo Covid testing.


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