Markets Report - 05 September 2022

A daily breakdown of the markets for the 5th September 2022, provided to you by Sterlex.

🇪🇺💶EUR/USD remains well under pressure and breaches the 0.9900 mark to flirt with levels last seen nearly 20 years ago. The latter, in the meantime, keeps closely following the prevailing debate around the size of the next interest rate hikes by both the ECB and the Federal Reserve. On the negatives for the single currency emerge the so far 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. The asset is witnessed a steep fall continuously after the release of the eurozone Harmonized Index of Consumer Prices (HICP). So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence. The preferred inflation indicator by the European Central Bank (ECB) landed at 9.1% led by the soaring energy crisis in the eurozone.

🇬🇧💷The recent surge in energy prices has raised concerns over the UK cost of living crisis and intensified fears of a deeper economic downturn. However, the Labor Day holiday in the US appears to challenge the momentum traders. That said, the cable trades take offers near 1.1470 heading into the London open. The British pound continues to be weighed down by a bleak outlook for the UK economy and uncertainty over the economic policies of the next British Prime Minister. It’s worth noting that the pre-result anxiety joins the fears of a worsening energy crisis in the UK and more noise surrounding the US-China tussle to exert downside pressure on the pair. GBP/USD slides to the fresh low since March 2020 as the cable traders await the UK PM Leadership results on Monday. The worries were further fueled by the latest forecast from the British Chambers of Commerce (BCC), which expects the UK economy to record three consecutive quarters of contraction this year.

🇺🇸 🏦he US Dollar Index (DXY), which gauges the greenback vs a bundle of its main rivals, resumes the upside and reaches new cycle tops beyond 110.00 the figure on Monday. This view was reinforced by Chair Powell’s speech at the Jackson Hole Symposium. The index leaves behind Friday’s inconclusive price action and resumes the upside in quite a firm pace at the beginning of the week, surpassing the 110.00 mark for the first time since June 2002. Extra volatility in the dollar, however, should not be ruled out considering the ongoing debate around the size of the September’s interest rate hike by the Federal Reserve amidst the ongoing data-dependent stance in the Fed. Speaking about the September 21 meeting, and according to CME Group’s FedWatch Tool, the probability of a 75 bps rate hike is now at 58%, from around 75% a week ago. Bolstering the dollar’s strength appears the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market. Indeed, the firmer pace in the dollar comes in tandem with the equally persistent expectations of further monetary tightening by the Federal Reserve, as the September gathering looms closer.