March 7, 2023
“EURUSD reached its highest point in almost two weeks yesterday due to a renewed weakness in the US Dollar, but it subsequently decreased slightly. The Greenback struggled to attract demand on the back of the positive shift in risk sentiment, however, investors are expected to hold off on speculating any additional USD weakness until Powell’s testimony, which is scheduled for later today.”
Sam Cornford, Partner – Head of Trading
Federal Reserve Chairman, Jerome Powell, faces the tough task of convincing legislators that he can balance the need to bring down inflation without harming the rest of the economy during his semi-annual testimony on monetary policy today. The markets have been eagerly anticipating Powell’s insights on possible changes in interest rates that could impact the value of the US dollar. While the recent sentiment has been positive, the markets remain cautious as Powell’s performance could easily shift the sentiment in the opposite direction.
UK house prices increased unexpectedly in February, as per lender Halifax, due to possible improvements in consumer confidence and the mortgage market. However, the trend overall remained downward, with most other indicators of the housing market yet to show a similar improvement after a slide in house prices following the onset of the COVID-19 pandemic. Mortgage approvals and other indicators of housing market activity have plunged to multi-year lows over the past few months. The decline has been partly attributed to disruptions in the mortgage market linked to the brief premiership of Liz Truss.
Sterling is stronger against euro and weaker against the dollar this morning. UK-focused equity funds experienced the third-largest monthly outflow on record, with investors pulling out £962 million ($1.16 billion) in February, according to funds network Calastone. In contrast, bond funds saw £834 million of inflows during the same month, despite the FTSE 100 hitting an all-time high in early February on the back of a resurgence of global risk appetite, driven by hopes that inflation was easing.
Euro is weaker than most major currencies in the early morning trade. In France, most trains came to a halt, oil refineries were blocked, and power production was reduced due to nationwide strikes organized by unions against President Emmanuel Macron’s pension reform plans. Opinion polls have shown that a majority of voters reject the proposed reform, which includes raising the pension age by two years to 64, among other measures. Despite this, the government intends to stand its ground and carry out the reforms to ensure the pension system does not go bankrupt. Unions have vowed to ramp up pressure to convince lawmakers not to vote for the reforms, with rolling strikes, particularly at oil refineries and on railways, potentially prolonged over several days..
The dollar is well bid against most major currencies overnight. Two US senators plan to unveil legislation aimed at granting President Joe Biden’s administration new powers to ban Chinese-owned video app TikTok and other apps that could pose security risks. TikTok has been under increasing scrutiny over fears that user data could end up in the hands of the Chinese government, potentially undermining Western security interests. TikTok’s Chief Executive, Shou Zi Chew, is due to appear before Congress on March 23.
European markets opened flat this morning, as investors wait for Powell’s testimony. The pan-European Stoxx 600 index remained unchanged, with most sectors mildly positive, except for a 0.3% loss in tech stocks and a 0.8% gain in the retail sector. In the US, the S&P 500 and Dow Jones Industrial Average inched up, while the Nasdaq Composite slipped slightly. Stocks opened higher but later pared their gains during the afternoon trading session.
Main Economic Data/Central Banks/Government (All Times CET)
8:00 a.m.: Germany Feb. Factory Orders
8:00 a.m.: Norway Jan. Industrial Production
8:30 a.m.: Hungary Jan. Industrial Production
8:30 a.m.: Riksbank’s Thedeen speaks
9:00 a.m.: Spain Jan. Industrial Output
10:00 a.m.: ECB’s Consumer Expectations Survey
12:00 p.m.: Ireland Jan. Industrial Production
4:00 p.m.: Fed’s Powell appears before Senate Banking Panel
Bank of Italy reports on balance-sheet aggregates
Earnings include Zalando, HelloFresh, Thor Industries, Dick’s Sporting Goods, Sea, Dole, Ferguson
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