Daily Market Commentary 2nd February 2023

Markets were lower ahead of the FOMC rate decision due out shortly. The Fed is expected to raise rates 25 basis points, but it will be the Fed Chairman’s commentary that determines the market direction. Chairman Powell has not wavered in his commitment to stamping out inflation and it is unlikely he will offer solace. The Bank of England and ECB will follow the Fed tonight and are both expected to raise rates by 50 basis points. The ECB is way behind the yield curve and needs to act hard and fast to hit the peaking inflation. The EUR has been on the rise reflecting the narrowing of interest rate differentials between Europe and the US. The EUR rallied above 1.0900, while the GBP approaches 1.2300, once again. Manufacturing PMI data in the US and Europe continues to contract and points to the recession in this sector. The ADP Jobs report in the US, was a big miss, hinting at a weaker than expected Non-Farm Payrolls number, but focus will turn to employment following the big Central Banks’ rate decisions.

The softer reserve allowed the commodity currencies to stabilise, with the AUD holding 0.7050, while the NZD trades above 0.6400. Australian Manufacturing PMI numbers were neutral, while NZ Employment data was worse than expected. The RBA will be forced to take more aggressive action on monetary policy, thus destabilising the housing market and the consumer. The RBNZ has been aggressive and will hold the line. All eyes remain on the Fed, ECB and Bank of England, before they turn to US Non-Farm Payroll data.