Markets Report - 01 November 2022

A daily breakdown of the markets for the 1st November 2022, provided to you by Sterlex.

🇪🇺💶EUR/USD manages to attract some dip buyers and spark a corrective bounce to the region beyond the 0.9900 barrier on Tuesday, all accompanied by the selling mood hitting the dollar. Furthermore, the increasing speculation of a potential recession in the region - which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals – adds to the fragile sentiment around the euro in the longer run. The resurgence of speculation around a potential Fed’s pivot seems to have removed some strength from the latter, however. In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence.

🇬🇧💷Pound bulls are gearing up as odds of a 75 basis point (bps) rate hike by the Bank of England (BOE) has escalated. In an article written by Financial Times on Monday, Treasury insiders said that UK PM Rishi Sunak and Chancellor Jeremy Hunt had agreed that “those with the broadest shoulders should be asked to bear the greatest burden”, and everybody’s taxes would go up.

They further added that the administration believes that the fiscal hole in the economy led by helicopter money injected into the economy to fight against Covid-19 and to support households against energy bills is needed to be filled. UK’s novel leadership is putting blood and sweat to curb the debt crisis. And, spending cuts seldom cannot fulfill the fiscal hole. The extent of the 75 bps rate will be the largest in the current rate escalating cycle. In order to tame the double-digit figure inflation, BOE Governor Andrew Bailey has no other option than to tighten policy with a bigger rate hike.

🇺🇸 🏦The US Dollar Index trades in negative territory near 111.00 in the early European morning and US stock index futures gain between 0.4% and 0.6%, pointing to an improving market mood. In fact, the current market pricing indicates over a 50% chance that the US central bank will hike rates by 50 bps at the December meeting. In the meantime, speculations that the Fed will soften its hawkish stance amid signs of a slowdown in the US economy continue to weigh on the USD. This leads to a further decline in the US Treasury bond yields and undermines the greenback. The US economic docket will feature the ISM's Manufacturing PMI survey for October and JOLTS Job Openings data for September. Finally, the benchmark 10-year US Treasury bond yield continues to fluctuate above 4%. The dollar is having a difficult time finding demand on Tuesday with market participants reassessing their positions ahead of Wednesday's all-important Fed policy announcements.