Market Report - 13/10/2023
Uninspiring GDP data sends Pound lower ; US inflation rises
Thursday certainly created plenty of volatility and news to keep the markets busy. UK GDP figures kicked off price action with the pound suffering some further losses after July’s data was revised to the downside from the initial estimate.
In reflection of the week to date, Thursday certainly created plenty of volatility and news to keep the markets busy. UK GDP figures kicked off price action with the pound suffering some further losses after July’s data was revised to the downside from the initial estimate.
GBP
In the UK, recession fears appeared to stay front of mind after a bout of less than encouraging GDP fell short of expectations. That being said, the UK economy is expanding and when compared to previous months, however many still are of the conviction that things are likely to get worse before showing much improvement. There are prevalent signs that souring inflation readings, the cost of living and sky-high interest rates are taking their toll.
To add further injury, the IMF described how the UK economy was forecast to show the slowest rate of expansion in all of the G7. Investors however appear to be taking some of these projections with a pinch of salt, given how the GBP has held it’s ground against the EURO and still showing some appetite to rally against the U.S dollar earlier in the week. UK data today in the way of MPC member speeches have created some further volatility today and analysts look ahead to Bank of England member Cunliffe’s speech this afternoon at 17:30.
U.S
In the U.S, core inflation fell this week to 2-year lows whilst headline inflation exceeded expectations. Dovish communications followed from FOMC and it appears as though some caution could well be applied to the next FOMC meeting which will be held on October 31st/1st Nov.
EUR/USD has fallen back below the 1.06 highs that were seen earlier in the week and there appears to be substantial uncertainty around any further tightening and the degree at which the FED may look to tighten monetary policy further, if at all. This being said, U.S yields have continued to rally as it appears that the markets raise bets in favour of one last Fed rate increase.
EUR
The Euro has also had a difficult week when ECB meeting minutes shed light on some divergence between committee members at the last policy meeting, suggesting that September’s potential rate hike looks to be a close call. This in addition to Germany’s largest bank stating that the domestic economy is becoming increasingly likely to suffer a double-dip recessing. Analyst estimates point to a GDP contraction of around 0.3% by H2 2024.