The Morning Update

Wednesday September 13th, 2023

Written by:
Paul Harrison

The USD holds firm, oil prices continue higher, equity markets are down, and US yields rise ahead of the key US inflation report. The USD and US yields gain, while equity markets are down heading into the US inflation report with the CPI expected to slip to 4.3% down from 4.7% in July. Oil prices hit 2023 highs, testing a 10-month high and impacting US inflation levels as OPEC+ cuts are expected to extend to the end of 2023. In Europe, expectations that the ECB will hike 25bps on Thursday rose to 70% after reports that the ECB's new economic estimates will show an inflation forecast for 2024 above 3%. Today's focus will be on the US Consumer Price Index and its results will be the primary driver of currency market direction today.

In other news. Germany to revise 2023 GDP outlook to a contraction of up to 0.3%. The EU to launch anti-subsidy probe into Chinese electric vehicles. Ukrainian strike Russian navy yard in occupied Crimea. North Korea's Kim pledges support for Russia's 'sacred fight' in Ukraine-FT. In a Reuters poll, economists expect the Fed to leave rates unchanged on Sept. 20th, with a cut unlikely before Q2-2024. China says it has not banned the purchase, or use of foreign phone brands. Libya storm death toll expected to swell as sea washes bodies ashore.

In currency news. GBP weakens as the UK economy shrinks more than expected. The USD edges higher, while the Euro stalls ahead of today's US Inflation report and Thursday's ECB rate decision. CNY firms 0.15%, while Asian currencies slip 0.1% on average vs USD. Trading currencies continue under pressure with ZAR and NZD flat, while JPY, CHF & AUD fell 0.2%, MXN & NOK weakened 0.3%, and SEK dropped 0.55% vs USD.

Oil prices continue to strengthen to a fresh 10-month high with the extension of supply cuts by Saudi Arabia and Russia to the end of 2023.

CAD holds on to weekly gains as increasing oil prices help offset the impact of the strengthening USD index. Domestically ongoing labor disputes, the economic impact of wildfires, increasing energy costs, and poor weather conditions in August are expected to impact growth in Canada. With no key CAD economic releases this week, investors will be focused on US & European data releases to help provide direction to the loonie this week.

EURCAD continues to slip hitting its weakest level in August as investors remain cautious ahead of the ECB interest rate decision on Thursday and surging oil prices help support the CAD.

EUR stalls below 1.0750 after Eurozone data and ahead of the US inflation report. Euro slips below 1.0750 after EUR industrial production y/y tumbled more than expected to -2.2% in July vs. -1.1% in June. The German Government said its Gross Domestic Product is expected to shrink up to 0.3% in 2023 revised down 0.4% predicted in April. The focus will be on Thursday's interest rate decision as the central bank balances the prospect of recession with falling growth expectations, while it is expected to raise its inflation forecast to 3% in 2024. Investors anticipate the ECB will hike interest rates by 25bps on Thursday, but is then expected to pause for the rest of 2024. Today the US CPI results will be the primary driver of currency markets, but we will likely see the Euro hold on dips towards 1.0700 ahead of the ECB rate decision.

GBPEUR weakens after UK GDP and industrial production fell more than expected in July, while Euro steadies heading into the ECB interest rate decision tomorrow.

GBP weakens as the UK economy continues to lose momentum. The pound remains under pressure, retesting 1.2450 as the UK economy continues to contract, while inflation levels continue to keep domestic interest rate high. The Bank of England has raised interest rates 14 times since December 2021, with interest rates sitting at a 15-year high of 5.25% and investors expect the BoE to raise rates again next week towards 5.5%. Domestically GDP contracted by 0.5% in July, and Industrial Production y/y dropped to 0.4%, while Manufacturing Production y/y did beat expectations at 3% y/y vs. 3.1% previously. Today the main market mover will be the US inflation report.