Markets optimistic about weakening of inflation
2023.02.03 02:50
Markets optimistic about weakening of inflation
By Ray Johnson
Budrigannews.com – Markets took a dovish cue from policymakers at the European Central Bank and the Bank of England on Friday, who stated that inflationary pressures in their economies have become more manageable. As a result, the euro and sterling fell against the dollar.
The dollar strengthened against a basket of currencies, reversing earlier losses, rising 0.02% to 101.81, moving away from Wednesday’s nine-month low of 100.80.
In Asia trade, the pound fell to $1.2219, 0.04% lower than its previous low of $1.2203, which was more than two weeks ago. In the previous session, it had decreased by 1.2%, marking the largest daily decline in a month.
After falling 0.7% on Thursday, the euro fell 0.12% to $1.0897, further separating it from its 10-month high of $1.1034.
Expectedly, the Bank of England (BoE) and the European Central Bank (ECB) both increased interest rates by 50 basis points on Thursday, indicating that the BoE’s battle against high inflation was losing ground.
President Christine Lagarde acknowledged that the outlook for growth and inflation in the euro zone had become less concerning, despite the fact that the ECB explicitly hinted at at least one additional hike of the same magnitude next month and reaffirmed its commitment to combating high inflation.
According to Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:), “The ECB was a little bit more dovish than markets had previously expected… (while) the Bank of England has given a small hint that they might be close to finishing their tightening cycle).” CBA).
A day earlier, Federal Reserve Chair Jerome Powell had told a news conference following the Fed’s 25bp rate hike that the “disinflationary” process in the United States appeared to be underway, which had sparked a significant sell-off in the dollar.
The Fed’s fight against inflation will be put to the ultimate test on Friday with the nonfarm payrolls report. The number of Americans filing new claims for unemployment benefits fell to a nine-month low last week, indicating that the labor market remains tight.
After losing 0.86 percent on Thursday, the lost 0.11 percent to $0.7068 in other currencies, while the gained 0.05 percent to $0.6479.
Markets are looking for indications that interest rates may be close to peaking in the majority of major economies based on statements made by policymakers following a string of central bank meetings this week.
Kong of the CBA stated:
“We’re starting to see central banks converging to a pattern now.” He added that “the major central banks are definitely approaching the end of their tightening cycles.”
The Japanese yen, which last year collapsed under pressure from rising interest rate differentials against Japan’s low interest rate environment, has received some relief from the imminent peak in U.S. rates.
The yen was last 0.1% higher at 128.54 per dollar, reversing two weeks of decline and heading for a weekly gain of 1%.
Haruhiko Kuroda, governor of the Bank of Japan (BOJ), said on Friday that he expected wages to rise “quite significantly.” However, he maintained his position that the BOJ should continue its ultra-loose monetary policy to help the economy.
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