Markets Report - 20 September 2022

A daily breakdown of the markets for the 20th September 2022, provided to you by Sterlex.

🇪🇺💶EUR/USD takes offers to renew intraday low around 1.0020 as risk appetite weakens during full markets on Tuesday. That said, ECB President Christine Lagarde may allow the pair sellers to take a breather should she miss the mention of economic fears. Even so, the hawkish Fed expectations keep bears hopeful. It’s worth noting, however, that the return of the risk-off is likely to join the pre-event anxiety to exert downside pressure on the EUR/USD prices. Elsewhere, hopes of a major stimulus from the European Commission and hawkish speech from the European Central Bank (ECB) officials also seemed to have favored the EUR/USD buyers. In addition to the return of the Japanese and British traders after a long weekend, fears surrounding China and Europe join a cautious mood ahead of the key weekly events to weigh on the major currency pair.

🇬🇧💷The fiscal cost of the UK government plans to alleviate energy costs could also pressure GBP, especially give the ongoing deterioration in the external balance. Market participants also seem reluctant to place aggressive bullish bets around the British pound amid a bleak outlook for the UK economy. This, to a larger extent, overshadows the prospects for more aggressive rate hikes by the Bank of England, which, so far, has failed to impress bulls or provide any meaningful impetus to the GBP/USD pair. For the upcoming BoE meeting on 22 September, the market is 80% priced for a 75 bps hike rather than 50 bps (our economists expect this smaller move), which creates some downside risk for GBP. A likely acceleration in the Bank of England (BoE) tightening pace looks set to increase recession fears.

🇺🇸 🏦Bolstering the dollar’s underlying positive stance 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. Some loss of momentum in US yields also accompany the slow decline in the dollar on Tuesday, as market participants seem to have already fully priced in a ¾ point interest rate raise by the Fed on Wednesday. Despite a 100 bps rate hike still remains on the table, its probability has dwindled to around 16% according to CME Group’s FedWatch Tool. The USD Index (DXY), which gauges the greenback vs a bundle of its main rivals, extends the gradual decline and hovers around the 109.50 region on turnaround Tuesday. The index so far clinches its third consecutive daily pullback and extends the corrective downside from last week’s peaks past the 110.00 hurdle amidst the lack of a clear direction in the global markets and swelling cautiousness ahead of the FOMC event on Wednesday.