Daily Market Update

Buck regains as uncertainty hits equities again

May 25, 2022

The Euro has been dropping a big chunk of its recent gains this morning, primarily as a result of the risk-off mood overtaking the market following China’s negative outlook.

Overview

In Davos, where world financial leaders are meeting, European Central Bank President Christine Lagarde explained that the ECB will hike rates, but not in an expeditious way. Despite the momentum and better data recently for the Euro-zone, the fact remains that as the globalized system remains readjusting, the buck can always gain on the fear that the challenges will be more than transitory.

 

What to Watch Today…

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EUR

The Euro has kept its gains, for now, after a week that saw the deflation of the buck as data did not seem to match the intentions of the Fed. More importantly, this week has seen some officials raise their voices about the European Central Bank’s need to consider controlling high inflation. In particular, energy prices on the other side of the Atlantic have made it very difficult for companies to do well and political friction has complicated the effectiveness of natural gas and oil from other nations. ECB member Luis De Guindos echoed the sentiment of others in saying that the inflation being experienced may not be transitory.

 

GBP

Poor data in the U.K. in the form of Purchasing Managers Index and review of private sector responses have lowered the Pound but today’s impact has not been as severe. It is now in doubt that the Bank of England will be able to continue its rate-hike path going forward if the economy continues to show signs of lagging. Expect the high volatility to affect all peers against the Greenback unless there is a perceived dovishness from the Fed Minutes at 2 PM.

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