Market Drivers – US Session 21/02/2023

Mohamed Abdelhamid 22 February, 2023 2:11 am Forex Market, Market Update

Wall Street returned from the long weekend and stayed in the red territory. US indexes are sharply down, losing roughly 2% each.

EUR/USD trades at around 1.0650, not far from an early low at 1.0636. GBP/USD hovers around 1.2110, with the Pound supported by upbeat local data. The USD/JPY flirts with 135.00, while USD/CHF trades at around 0.9270. Commodity-linked currencies are sharply down, with AUD/USD trading at 0.6855 and USD/CAD up to 1.3520.

Gold trades at $1,833 per ounce, maintaining its bearish route, while crude oil prices also eased, and WTI stands at $76.60 a barrel.

The pound sterling achieved strong gains during the US session, Tuesday, and was the most major currency gainer, by an estimated rate of 5.28%, benefiting from the positive economic data issued in the United Kingdom, which reinforced optimism about the ability of the British economy to recover quickly, and this in turn supports the Bank of England’s moves to continue to tighten monetary policy.

Key Developments

ECB’s Lagarde noted on Tuesday that the headline inflation has begun to slowdown but reiterated that policymakers intend to raise the key rates by 50 basis points at the upcoming policy meeting.

The market focus on Tuesday is on geopolitical tensions as the conflict between the US and Russia escalated in the last 24 hours. Secretary of State Antony Blinken said the United States suspects China is considering providing military support to Russia.

Moscow responded by suspending its nuclear arms treaty with the US and pledging to maintain its military actions in Ukraine.

United Kingdom Prime Minister Rishi Sunak Spokesperson said the prime minister had stated unequivocally that there are still substantive issues to be resolved with the EU, bringing back to the table Brexit woes.

Economic Data

Price pressure concerns were renewed after the release of the US S&P Global PMIs. The Manufacturing and Services index came in better than anticipated. Still, the official report noted that “firms continued to seek to pass on greater input costs to customers through hikes in output charges. The rise in selling prices was the quickest for four months and strong overall.” Continued inflationary pressures mean the US Federal Reserve will remain on the tightening path for longer.

Annual inflation in Canada rose by 5.9% in January, down from 6.3% in December. Also, the Bank of Canada’s Core CPI, which excludes volatile food and energy prices, was up by 5% on a yearly basis from 5.4% in December.

Beyond US S&P Global PMIs, European ones were mixed, with the services sector expanding but the manufacturing one still in contraction mode. UK figures, on the other hand, were quite encouraging.

And On Wednesday

The Reserve Bank of New Zealand will announce its monetary policy decision early on Wednesday. On the US front; on Wednesday, the first FOMC Minutes in 2023 will be released. Supported by aggressive Fed rhetoric and rising T-yields, the US Dollar Index is expected to record monthly gains.

The majority of traders and investors will scan the impending release for comments and quotes referring to the Fed’s potential return to 50 bps hikes. The Federal Open Market Committee’s (FOMC) policy meeting from January 31 to February 1 was recorded in the minutes within hours.

Also Read: