Market Updates – February 5

Federica D’Ambrosio

Senior Trader and CFO

Has Inflation Turned A Corner?

February started with a full agenda for the financial market with a risk off approach dominating the FX market.

The Fed voted as anticipated for a 25 basis point hike in interest rates during the FOMC meeting last Wednesday, preparing to end the aggressive policies aimed to tackle high inflation levels. J. Powell in the press conference mentioned how the committee remains open  to further increases to get to an “appropriately restrictive level” adding that it would be premature to declare victory against inflation.

The first monetary policy meeting confirmed the increased confidence in a downturn of the inflationary levels and brought back the risk appetite on the S&P and the Nasdaq both closing at the highest since the end of summer.

The Bank of England raised interest rates by 50 basis points bringing the rate to 4%, the highest since 2008. Governor Bailey suggested that first signs of inflation turning have been seen but it’s too early to declare victory as the inflationary pressure remains high. The news of a possible pause on hiking rates halted the recovery of Sterling Pound that fell against the Dollar. The BoE also added that due to lower energy prices the Recession is likely to be “much shallower”.

On another note President Christine Lagarde made clear how it remains crucial for the ECB to bring mid term inflation levels to the 2% target. Hiking by interest rates by another 50 basis points and confirming the intention of doing the same for the next meeting in March. 

The week ended with the Labor Department surprising the market on Friday with the Non farm Payrolls data for January rising by 517,000 in contrast with the expectation of just 185,000. The US Dollar in response gained over 0.5% letting the traders hope for a positive correction to the upside. 

Gold prices ended the week in negative territory, trading below the significant level of 1900.00 after a sharp rise above 1950. \following the FOMC press conference, gold started a strong correction to the downside triggered by a rising Dollar, magnified by the recent NFP data release. This enhanced the selling pressure once the psychological level 1900 was broken to the downside. 

Remember to check your emails for any upcoming news events this week
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