Daily Market Update

Euro climbs back as ECB may start hiking

May 18, 2022

The U.S. Dollar is relatively quiet today without much data to chew on and a couple of events developing such as the G-7 meeting. 

Overview

For now, the buck has gained great benefit from monetary bank policy becoming hawkish and further commentary from Fed chairman Powell representing the commitment to tighten. Regardless of concerns, especially reflected in equities, the Fed believes the best course of action is to raise interest rates until inflation does cool off.

It is the lack of faith in the Fed’s ability to do this that has caused market turmoil, but fears do seem to be fading away somewhat. It has helped investors to witness China stepping up stimulus to adjust to the challenges presented by long periods of inactivity and housing sector declines. High volatility will remain a feature in these challenging markets, but there is hope we hit a bottom and are scaling back up.

 

What to Watch Today…

  • No major economic events are scheduled for today

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EUR

The Euro bears may have to hibernate with the shared currency already recovered by 1.5% from the losses experienced last week. Speculation is growing that the European Central Bank will indeed be hiking interest rates at their July meeting with plenty of financial voices voicing arguments supporting the measure.

It is even slightly possible that the ECB shocks with a 50-basis points move, but again, a distant chance. Gross Domestic Product reading for Q1 for the euro zone was surprised by expanding by 0.3% Q-o-Q. We think the euro has room to grow, and there is merit this time.

 

GBP

Sterling fell after rising yesterday from the increased likelihood of tightening for the next 5-6 meetings by the Bank of England. Inflation in the form of the Consumer Price Index came out a little lower than expected at 2.5% vs 2.6%for the month of April and the Producer Price Index expanded by more than double the forecast at 2.3% vs 1.1%. We shall see where this all leads the Pound with Brexit -trade-deal woes adding to the pressure that the economy will contract.  

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