Daily Market Commentary 26th July 2023

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US equities are running are winning streak, posting gains for more than two weeks, on the back of surging confidence. The confidence comes directly from the Central Banks, who are indicating the inflation crises is all but over and we are close to ‘peak interest rates’. Markets now keenly await confirmation from the Federal Reserve and the ECB, which both announce their interest rate strategy over the next two days. They are both expected to raise interest rates by 25 basis points, but it may be the last, as the Fed does not meet again until September. Markets will closely watch the actual decision and, more importantly, the accompanying narrative. The US Dollar held steady ahead of the key meetings, with the EUR trading 1.1020, while the GBP pushed back above 1.2850.

The commodity currencies are being buffeted by speculation over the Fed and the ECB rate decisions, as the high interest rate environment has put Europe firmly into recession, hitting commodity demand hard. The associated currencies have been under demand pressure, with the NZD trading around 0.6200, while the AUD looks to regain 0.6800 ahead of key local inflation numbers due to be released today. Australian inflation is expected to tumble, from 7% to 6.2%, confirming the crises is heading in the right direction. Any wavering from the cooling expectations, could have a serious impact on the currency.

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