Gentium FX | Daily Report - 8th March 2023 - Hawkish Powell Lifts US Dollar
GBP: Sterling lost notable ground against a rampant US Dollar as well as the Euro, Japanese Yen and Swiss Franc following comments made by the Chairman of the Federal Reserve in America indicating that interest rates in the world's largest economy would be going higher than previously expected. Sterling has high sensitivity to risk sentiment. If risk sentiment is high, the Pound performs well and vice versa. Furthermore, for now the Euro is looking like a more attractive proposition then Sterling thanks to ongoing hawkish repricing in European Central Bank rate expectations and a more encouraging domestic outlook. Sterling is lacking any domestic drivers this week but with risk sentiment is deteriorating it could be a tough week for Sterling.
EUR: The European Central Bank is expected to propel rate expectations higher, and the recent inflation readings give President Christine Lagarde all the incentive to sound hawkish when she delivers another 50bp hike next week. Incidentally, the latest PMIs have been pointing to an improved eurozone outlook. Economic data from Germany showed that Industrial Production expanded by 3.5% on a monthly basis in January, this exceeding the market expectation for an increase of 1.4%. On a less positive note, Retail Sales contracted by 0.3% in the same period, coming in well below the 2% consensus. President Christine Lagarde will give a speech later today but she is not expected to touch on monetary policy or outlook.
USD: Federal Reserve Chairman Jerome Powell sent markets into a frenzy yesterday while testifying before the US Senate as he opened the door wide open to a 50 basis points rate hike at the next monetary policy meeting. Powell noted that they are prepared to increase the pace of rate hikes if data warranted it and triggered a rally in the US Dollar. He is also hinted at a higher peak rate. Markets will be watching closely over the next few weeks to see how bullish the Federal Reserve will be. For now, volatility will remain elevated possibly until the end of the week where we will await Friday’s jobs data. Today, in the US docket we have the second round of Powell’s testimony (to the House).
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