Gentium FX | Daily Report - 15th September 2022 - US Dollar Remains Strong

GBP: There are no major economic releases today in what has been a busy week so far in the UK’s economic calendar. Yesterday’s inflation report showed a marginal slowdown in prices for August compared to July but inflation is expected to remain around the 11% mark before falling back more dramatically in 2023. As far as the Bank of England is concerned, labour and wage growth dynamics are being monitored closely to gauge how entrenched inflationary pressures have become. Hawks worry that worker shortages could lead to core inflation staying more persistently above target. Investors are currently pricing in a 67bp rate hike at next week’s Bank of England meeting and there is a good probability a 75bp gets priced in. A 75bp hike should offer the Pound some support.

EUR: On the continent there are no market-moving data releases to highlight but there will be focus on two European Central Bank speakers Mario Centeno and Luis De Guindos. Comments made by European Central Bank (ECB) member Robert Holzmann have been scrutinised closely after he said that chances of stagflation have increased. Furthermore,?he said the ECB underestimated the pace of inflation and to scale down the same the ECB will announce more rate hikes this year. The extent of hikes will remain data-dependent. There is still some uncertainty on whether the government’s efforts to freeze hikes in energy bills would have a predominantly dovish impact on central banks (as inflation would be lower) or a hawkish impact as the economic impact would be smaller and that allows more tightening.

USD: The Federal Reserve is likely to scale up the pace of hiking interest rates after US inflation came in above consensus this week. The priority for the Fed is to bring price stability in the economy and for that to happen growth prospects and employment may have to make a lot of sacrifices. Investors were expecting that falling gasoline prices and a spree of hiking interest rates will cool down inflation, however, the price pressures have not responded well to the former. In today’s session, investors will keep an eye on the US Retail Sales data. The US Dollar remains well supported.

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