Markets Report - 17 August 2022

A daily breakdown of the markets for the 17th August 2022, provided to you by Sterlex.

🇪🇺💶Price action around the European currency, in the meantime, is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence. Impact of the war in Ukraine on the region’s growth prospects and inflation. Continuation of the ECB hiking cycle. The re-emergence of the demand for the US dollar put the risk complex once again under pressure on Wednesday amidst the broad-based recovery in yields in the global cash markets. Fragmentation risks amidst the ECB’s normalization of its monetary conditions. Later in the session, another estimate of the GDP in the euro area during the April-June period is due, while Retail Sales and the release of the FOMC Minutes will be in the centre of the debate later in the NA session. Italian elections in late September. EUR/USD keeps navigating the lower end of the recent range amidst some modest losses, although it has put some distance from weekly lows in the 1.0120 region recorded on Tuesday.

🇬🇧💷The British pound edges higher after the UK Office for National Statistics reported that the headline CPI accelerated to the highest level since 1982 and rose 10.1% YoY in July. The reading was well above the 9.4% seen in June and 9.8% estimates, lifting bets for another rate hike by the Bank of England. This turns out to be a key factor exerting some downward pressure on the EUR/GBP cross. That said, concerns about an economic downturn might force the UK central bank to adopt a gradual approach to raising interest rates. It is worth recalling that the BoE had warned earlier this month that a prolonged recession would start in the fourth quarter. This, in turn, held back traders from placing aggressive bullish bets around sterling and helped limit losses for the EUR/GBP cross. Sterling strikes back at the euro, backed by a hawkish Bank of England (BoE). Economists at ING expect the EUR/GBP to move back lower towards 0.8350.

🇺🇸 🏦In the view of economists at ING, FOMC minutes as a communication tool against easing expectations should keep the US dollar supported. The move higher in the dollar appears propped up by the equally firm tone in US yields, particularly in the short term and the belly of the curve, which manage to extend Tuesday’s advance. Later in the US docket weekly MBA Mortgage Applications are due in the first turn seconded by Retail Sales, Business Inventories and the publication of the FOMC Minutes of the July 27 meeting. Economists at Scotiabank think the USD bull cycle is looking very extended but USD bears will have to remain patient. The US dollar withstood a second, successive negative GDP print in Q2, which is typically shorthand for a recession. Indeed, the index picks up further pace and revisits the 106.70 zone, as the recent improvement in the risk complex seems to lack follow through. Bulls seem to have returned to the dollar on Wednesday. The dollar goes into today’s release of the 27 July FOMC minutes about 2% off the highs of the year.