Morning Comment 04.11.2022

Dealer Comment

9:28 4 Nov 2022
Morning Comment 04.11.2022

EUR

The Euro was trading in a broad range yesterday as focus returned to Ukrainian war headlines. Russia continued to target Ukraine’s infrastructure in an attempt to weaken resistance. Drone strikes were carried out on the Zaporizhzia nuclear power plant causing blackouts. However, the Euro’s losses were limited somewhat by Vladimir Putin’s U-turn on the Black Sea grain deal yesterday when the Kremlin decided to restart the export of grain via Ukraine. Russia’s threat to stop exports stoked concerns over higher food prices across the EU. Ukraine is one of the largest grain exporters in Europe, so Putin’s reversal eased concerns and helped underpin the Euro. EUR/GBP rose sharply back above 87p following the Bank of England interest rate decision which saw the Pound sell off but EUR/USD continued its fall following Wednesday’s US Federal Reserve interest rate hike with the pair reaching a 9-day low of 0.9730.

S&P Services PMI @ 9am

GBP

The Bank of England raised interest rates by 75bps yesterday in its biggest hike in 33 years in an attempt to tackle double digit inflation in the UK. The Monetary Policy Committee voted 7-2 in favour of the supersized 75bps hike and was in line with market expectations. The size of the hike mirrored that by the US Federal Reserve yesterday but while Fed Chair Powell warned markets yesterday that they underestimate how much more the US central bank can tighten, the BoE has gone the other way and strongly pushed back against market expectations for the scale of future increases, warning that following that path would induce a two-year recession. GBP/USD fell to a two-week low below 1.12 yesterday, while EUR/GBP rose to a weekly high above 0.8730. Looking ahead, the MPC retained its meeting-by-meeting approach and the next major event for markets will be the Autumn statement in the coming weeks which could inject further volatility into UK markets.

No data of note today.

USD

The US Federal Reserve hiked by another supersized 75bp yesterday in its battle to contain runaway inflation, bringing the target Federal Funds range to 3.75-4.00%. The statement and press conference paved the way for a downshift in the future pace of hiking, but also made it clear that the Fed has a way to go to tighten policy and will likely end up with a higher terminal rate than suggested by the September dot plot. The Dollar initially weakened after the FOMC statement was released as markets interpreted the addition of language pointing to a possible slowdown in the pace of tightening as dovish. However, Fed Chair Powell was able to deliver a hawkish message at the press conference, emphasizing that it was very premature to be thinking about pausing and that they still have a way to go. Powell’s pushback on the pivot markets have been looking for saw the Dollar regain its strength across the board, pushing EUR/USD back below 98c and GBP/USD below 1.1200.

Non-farm Payrolls @ 12:30
Unemployment Rate @ 12:30

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Author:Rachel Watters