BOE’S RECESSION WARNING, US JOBS REPORT UP NEXT

Markets got it right, the Bank of England (BoE) raised interest rates by 50-basis points – its biggest hike in over half a century and taking its Bank Rate to a new 13-year high. This wasn’t enough to support the pound though as the UK central bank warned of a more than year long recession with inflation upwardly revised once again to peak above 13% this year.To get more news about FxPro浦汇, you can visit wikifx.com official website.

The Monetary Policy Committee voted by a majority of 8–1 to increase the Bank Rate by 0.5 percentage points, to 1.75%. One member preferred to increase by 0.25 percentage points, to 1.5%. Despite signals for equally large hikes in the future, the pound failed to climb. Again, it proves that large hikes don’t always result in currency strength and it was dire economic outlook that weighed on sterling. The BoE forecasts the UK economy to slide into recession in the final quarter of this year and won’t return to growth for years to come. Wholesale gas prices have nearly doubled since May owing to Russia’s restriction of gas supplies and when this further feeds into retail prices, it will exacerbate the fall in real incomes for UK households. Meanwhile, data this morning has revealed UK house prices declined for the first time in a year in July, as rising interest rates and soaring inflation finally took their toll.
Earlier this week, we saw US job openings fell in June to a 9-month low, suggesting tightness in the labour market is easing somewhat amid growing economic pressures. Today’s US report is currently forecast to show the US added roughly 250,000 payrolls in July and the unemployment rate held near a 50-year low but given weaker signs such as job openings and jobless claims, we could see a disappointing set of results today. But what might this mean for the US dollar?

The current mantra of bad news is good news for risk appetite and bad for the US dollar is because markets expect the US Federal Reserve (Fed) might therefore ease its aggressive tightening cycle in light of recession fears. However, as we saw from the BoE, despite recession risks rising, central banks remain fixed on taming inflation and next week’s inflation print is likely to top 9% y/y again. We’ve also witnessed a pushback from several Fed speakers this week, which has limited the downside for easing rate expectations. Currencies remain volatile amidst this inflation vs. recession debate and how central banks will react, and given the dollar has modestly risen in the aftermath of US non-farm payrolls releases this year, we wouldn’t be surprised to see more dollar strength to end the week.
Another turbulent week across markets has resulted in a mixed reaction across different assets. Global stocks are near a 2-month high, gold is a at a 1-month peak and oil prices are languishing on recession fears, compounded by the inversion between 2-year and 10-year US bond yields, which remains near the deepest since 2000.

Investors continue to flip-flop between risk-on and risk-off sentiment as they weigh up inflation vs. recession. The bond market is saying there is a high chance of recession, while the equity market is focused on the US labour data and speculating that a poor print will slow the Fed’s tightening pace (but again this is related to recession fears). Oil prices are also near their lowest since February (before the war in Ukraine) on demand concerns due to plunging consumer confidence and purchasing power. In the currency space this morning - risk-on dominates, with the pound falling against commodity linked currencies like the Aussie dollar South African rand and rising against traditional safe havens like the Japanese yen and Swiss franc.