Gentium FX | Daily Report - 7th September 2022- Market Awaits Cost of Living Package from PM Truss

GBP: Yesterday, the Pound was the only G10 currency that held on to its gains against the US Dollar. It has been reported that Truss will look to ease tensions with the EU over post-Brexit agreements and should stop short of triggering Article 16 from the Northern Ireland Protocol. As further details of Truss’ plan to help with the cost of living are revealed, the Pound could potentially see high sensitivity. The market expects her to announce a ￡130 billion package to freeze energy bills and a further ￡40 billion to help struggling businesses. However, these measures are likely to be paid by increasing the budget deficit – so investors remain cautious about what the implications of this would be to the wider economy. ?

EUR: The market awaits tomorrow’s announcement from the ECB regarding interest rates. So far, a 66 basis point hike has been priced into the rates – the ECB are likely to go for either a 50 or 75 basis point hike. A larger hike could give the Euro some support across the board, but a smaller one may see the common currency lose further strength. German Chancellor Scholz is still working on pushing through an agreement to cap energy prices – this would help bring down inflation expectations if implemented.

USD: A 75 basis point hike by the Federal Reserve is almost fully priced in which has given the Dollar further support. Today, the central bank’s beige book will be released whilst several FOMC members will be speaking. The market will pay close attention to the contrast in comments between FOMC member Brainard (who is considered quite dovish) compared to remarks from fellow member Mester (who is more hawkish). Chairman Powell will also be speaking tomorrow afternoon just after the release of US unemployment claims data.?

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