Morning Brief – The Focus

The Focus

Markets have been dominated by the geopolitical risk presented by events in Israel and neighbouring geographies. Week on week, this has meant that the best performing G-10 currency has been the Swiss Franc benefiting from a safe haven, defensive move. Despite US treasuries taking a breather from their chaotic sell off, the US Dollar has also remained relatively well bid. This is also likely down to the Dollar’s well-established if secondary role as a safe haven currency. 

With a data-light calendar from the perspective of the US Dollar this week, the risk perceived by markets from current conditions could be sufficient to allow the Dollar to retrace recent highs. As we wrote yesterday, the potential for global inflationary pressures to be supported by the addition of war surrounding Israel is tangible. The United States’ energy independence and possibility to produce a net energy surplus will limit the extent to which that inflation is imported into the US. Given how fresh the events surrounding Israel are, we are still likely to experience a short-term bias towards the Dollar. This is because interest rate expectations are likely to remain stable whilst the demand for safety will increase more quickly.

The Pound has so far remained relatively stable with attention drawn to other assets as markets react to the humanitarian crises unfolding. Such events are likely to once again create downside risks to current GBP pricing. However, there is the possibility for tomorrow’s release of UK inflation data to outweigh the impact of other macroeconomic selling pressures. This morning, employment data was released showing still highly elevated but decelerating wage and employment trends within the UK. So far, GBPUSD is on the back foot ahead of tomorrow’s possible CPI lifeline.

Discussion and Analysis by Charles Porter

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