Daily Market Commentary 28th October 2022

The ECB raised interest rates by 75 basis points, to 2%, in line with expectations and hinted at tightening liquidity (QT). This was the third rate rise in succession, but was not seen as extremely hawkish, as European bond yields drifted lower and the EUR fell back below parity. Market perception that inflation is easing in Europe and the US is prevalent and the search for reinforcement in any and all data, is daily. US GDP numbers came in much better than expected, rising to 2.6% for Q3, with prices and PCE numbers pointing to softer inflationary pressures. The end of the recession, however brief, or just a blip? The US Dollar regained some momentum and the EUR fell back to 0.9950, while the GBP dropped to 1.1550.

The rising reserve capped the rise in commodity currencies, with the AUD trading around 0.6450, while the NZD held above 0.5800. Markets keenly await the release of Japanese Employment and inflation data this morning, followed by the latest Bank of Japan interest rate decision. The BoJ is likely to leave rates unchanged, in line with it’s very hard-line policy, but may surprise? Markets will also keenly await the PCE inflation number out tonight in the US, which early data suggests may be softer?