EM Market Report graph table figures

Markets gather appetite for risk once again

Thanim Islam
Thanim Islam 03 August 2022

GBP: Sterling at three-month high versus euro

EUR: Euro on back foot as gas prices increase again

USD: Hawkish Fed members boost demand for USD

Sterling

Sterling benefitted against risk sensitive currencies over the course of European trading hours, as markets took on a risk-off mood ahead of Pelosi’s visit to Taiwan, but fell against the traditional safe havens, the Swiss franc, Japanese yen, and the US dollar. However, the change in risk appetite has seen these moves reversed overnight and into today.

Sterling still remains near 3-month high versus the euro and the Danish kroner.

Today's focus falls on the service sector PMIs, expected to remain at 53.3, with the composite figure (of the services and manufacturing sector) expected to remain at 52.8.

The week's big focus remains on the Bank of England's interest rate decision on Thursday. Markets are putting on an 80% probability of a 0.50% hike, but the key takeaway from this meeting looks set to be what guidance (if any) the Bank of England put on future hikes.

Euro

With gas prices rising and markets being in a risk-off mood, we saw the euro decline over the course of the day.

Today's focus will fall on service sector PMIs from Germany, France, Spain, and the whole eurozone bloc.

USD

The dollar started higher yesterday on safe haven bids, alongside the Swiss franc and Japanese yen, as markets became cautious ahead of Nancy Pelosi's visit to Taiwan.

The dollar's strength continued in the afternoon after Fed speakers Daly, Mester, and Bullard set out a hawkish tone, suggesting that the Fed is “nowhere near done” when it comes to interest rate hikes, and that even with additional hikes the economy should avoid falling into a recession.

On the data front, the number of job vacancies in the US fell more than expected, suggesting that perhaps the job market is loosening. We await Friday's jobs numbers as well to give a better picture of the job market, one of the key factors for the Fed in it's interest rate decision making.

Today we have several more Fed members speaking, and like the UK and Eurozone, we await PMI data from the service sector. Although equity markets have calmed down over Pelosi’s trip to Taiwan, we shall continue to watch for developments on how China react.

Chart of the day

Risk appetite came back into the markets overnight, as investors became cautiously optimistic that significant escalation of US-China tensions can be avoided, causing a sale of safe haven currencies, the Swiss franc and the Japanese yen. We continue to watch for developments and appetite for risk in the markets.

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Market rates

Today's Interbank Rates at 09:48am against sterling movement yesterday.

Euro

€1.195

US dollar

$1.217 ↓

Australian dollar

$1.765

South African rand

R20.36 ↑

Japanese yen

¥162.2

Have a great day.