Recession fears drive the market


To kick-off the week, the Pound has followed through with its recent gains, now making for a 4-day consecutive upwards climb against the Greenback. This comes after the Pound was battered down to multiyear lows following an array of economic scares in the UK and worries of a recession bought on by the Bank of England. On the contrary, the Pound is being buoyed as markets now look at the BoE to adopt a more hawkish approach to rate hikes. This comes as recent inflationary figures in the UK have shown a 40-year high of 9.0% amid soaring energy and fuel prices. There is still, however, some doubt as to what the BoE will do as they have previously stated they want to avoid hiking interest rates too aggressively, capping some of the Pound’s gains. As for the Dollar, it finds itself tumbling against its competitors in recent days as fears of a ‘hard landing’ surface. To go into more detail, this is where there is a sudden economic downturn after a period of strong economic growth. To exacerbate the Dollars difficulty, a recent survey asking CEOs found that two-thirds of them feared that the Feds ‘war on inflation’ will lead to a recession in the US. For trading today, the Pound may extend its gains in the meantime, but markets will likely focus on a Fed member speech expected later on today.


So far today, the Pound has also climbed against the Euro making for a 3-day upwards trend, placing the rate on par with its monthly highs. The Pound has found the momentum to initiate this steep climb after the release of some upbeat Industrial Trends data last week. The data came in above consensus which surprised the markets as the data on the UK front has underperformed for the most part recently. The gains on the Pound side may still be somewhat capped as investors are still cautious of the UK economy falling into a recession. Looking at the Euro, it is also having to deal with difficulties of its own as stocks last week plummeted on fears of a recession across the Bloc. On top of this, the ECB are still sticking to their dovish approach to interest rate hikes which is not too favourable for the Euro. In their recent meeting, the ECB also failed to spark any interest in Euro buyers. Shortly, markets will be able to digest an important data release from Germany relating to their Business Climate. As for the rest of the day, the rate will mainly focus on overall market sentiment.

Morning Update published by Frank Brightman (23/05/2022)

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