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October 17th - Federal Reserve Chairman Warshs remarks failed to boost the dollar, which is poised to end a four-week winning streak. The Bloomberg Dollar Spot Index fell as much as 0.4% on Friday, on track for its worst weekly performance since September 4th. The dollar weakened against most major currencies, while the euro rose, potentially ending a five-week losing streak. Warsh did not comment on monetary policy or the U.S. economy at the International Monetary Fund annual meeting in Bangkok on Friday morning, prompting investors to reduce their bets on a Fed rate hike later this month. This was Warshs last chance to hint at his policy stance before the Fed enters its quiet period ahead of its October policy meeting on Saturday. Noah Buffam, a strategist at CIBC Capital Markets, said, "Wash didnt provide any policy guidance. While this was expected at this stage, the market interpreted it as a signal that the Fed might not raise rates at its October meeting."The Israel Defense Forces (IDF) recently detected a suspicious aerial target in an area where IDF forces are operating in southern Lebanon and subsequently launched an interceptor missile. In accordance with protocol, no air raid sirens were activated.On October 17, Ukrainian President Volodymyr Zelenskyy, speaking at the EU summit in Brussels, Belgium on October 16, demanded at least €70 billion in additional aid from the EU next year. He also stated that restrictions on the use of the US Starlink satellite communication system affect the Ukrainian militarys ability to intercept Russian drones, and that a meeting at some level between Ukraine and the US is expected to be arranged in the coming days. Speaking to EU leaders, Zelenskyy said that Ukraines war-related expenditures are projected to reach €155 billion by 2027, and that Ukraine needs at least €70 billion from the EU for defense, weaponry, and strengthening national resilience. Zelenskyy called for a strong second round of sanctions against Russia, targeting companies and individuals involved in the production of Russian ballistic missiles, advanced communication systems, and drones. He also criticized the US-Russia "diesel deal," arguing that it would increase Russian revenue and fund its continued military operations.US lawmakers have introduced a bill to block Trump from making a diesel deal with Russia.Barclays: We expect the Federal Reserve to raise interest rates by 25 basis points each in December and January, compared to our previous forecast of a December rate hike.

Before BOE/ECB policy statements, EUR/GBP crosses 0.86; UK inflation is the main topic

Alina Haynes

Dec 14, 2022 11:32

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The EUR/GBP pair is circling the significant resistance level of 0.8600 in the early Tokyo session. Following a test of the previous week's low near 0.8560 on gloomy UK Employment data, the cross significantly recovered on Tuesday.

 

Market participants had predicted a decline of 13,500 claimants in November, but instead the number of claimants unexpectedly surged by 30,500. In addition, the 6.1% increase in average earnings supported inflation forecasts since rising household incomes will stimulate strong retail consumption. Increased salaries will undoubtedly help people offset higher payments brought on by inflation-adjusted prices, but they will also leave them with more money to spend elsewhere, which will increase retail demand.

 

The Consumer Price Index (CPI) data for the UK will be important in the future. The consensus predicts that annual headline inflation will decrease from 11.1% to 10.9%. The core CPI is anticipated to stay at 6.5%.

 

The Bank of England's decision on interest rates will have the greatest impact on the British economy this week (BOE). In an effort to lower inflation, Bank of England Governor Andrew Bailey is likely to raise interest rates further. The announcement of a rate increase of 50 basis points (bps) is expected, according to analysts at Danske Bank.

 

The BOE forecast that financial limitations on UK businesses, particularly smaller ones, will worsen in 2023 in its most recent Financial Stability report. Additionally, there are still no significant signs of financial distress among British households.

 

Investors are paying close attention to the European Central Bank's monetary policy decision on the Eurozone front (ECB). Interest rates are anticipated to rise by 50 basis points (bps) to 2.5% under Christine Lagarde's leadership as head of the European Central Bank. The expected terminal rate for the ECB is 3 percent.


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