Financial Contagion

GBP:?The Pound tumbled across the board yesterday as an absence of macroeconomic data lead to investors focusing on global sentiment as well as domestic news. Following the announcement that the UK has entered an economic recession, retailers have been adding to Sterling’s woes. In fact, a spate of large UK businesses outlined how the current economic state has affected them, leaving investors mindful of the impact the cost-of-living crisis is having on UK households, resulting in a move away from GBP. Ultimately, overall confidence in the UK outlook will remain very fragile given fiscal tightening and expectations of a dovish Bank of England policy. Furthermore, domestic factors are unlikely to boost the Pound ahead of next week’s Autumn Statement. For now, with little on the UK data docket, any Pound movements remain a play on broader sentiment, therefore, today's U.S. inflation data will be closely watched.

EUR:?The Euro consolidated its gains yesterday and held strong against a basket of currencies as the extended period of mild weather conditions in Europe eased fears over a major Euro-Zone energy crisis, although the situation is very fragile and could change quickly. For now, hopes for a recovery in the global economy have also helped underpin Euro confidence. In fact, the degree of confidence in the global economy and trends in risk appetite will remain a key factor for the Euro in the short term. Looking forward, the European data slate is largely empty today, with the day’s main focus set to be on U.S. inflation data later in the session.

USD:?U.S. midterm elections have so far showed that Republicans were edging closer to securing a majority in the U.S. House of Representatives, while control of the Senate hung in the balance, after Democrats performed well enough to stop a Republican "red wave". For now, with the election outcome still uncertain, investors are turning their attention to October inflation data due later in the session. In fact, market watchers are on the lookout for indications that price pressures are cooling after a barrage of outsize rate hikes by the Fed. Chairman Jerome Powell said last week that policymakers will likely take rates higher than envisioned in their attempt to curb soaring inflation, so a hotter-than-expected reading would likely cement expectations for the Fed to continue its hawkish path. However, a cooler-than-expected reading could see markets become more focused on the higher probability of a recession. Ultimately, economists are expecting the annual rate of inflation to come in at 8.0% and the monthly rate of inflation to rise by 0.7%.