Volatility is back in the driving seat
Daily Currency Update
Christine Lagarde still held positive rhetoric at the conference yesterday, but this did not seem to impact the market’s pricing of a 25bps hike in July. On this, today Europe sees inflation data from both Germany and Spain, which will be followed tomorrow by the Eurozone as a whole’s inflation figures. One reason why markets have not moved more aggressively on Lagarde’s comments is mainly because the Eurozone is expected to print soft data for June which could mean the ECB has to pull back to stop harsh recessions.Key Movers
The pound moved 1.2% lower versus the USD and 0.76% lower than the Euro.Huw Pill spoke at 11.30 am, before the central bank heads at 2.30 pm. He spoke on ‘Recent experiences in macroeconomic forecasting’ and shared plenty of data and BoE expectations. This was all backed up by Andrew Bailey who also signaled that UK interest rates would likely remain ‘higher for longer’ due to these persistent inflationary pressures. Further rate hikes priced in (6.25% now the expected ceiling for rates) and a ‘higher for longer’ stance leaves the door open for recession, hence the pound sell-off.
US goods trade balance improved by 6B to -91.1B.
The Fed’s communications with Jerome Powell at the Sintra conference remained positive on the outlook for the USD currency. The core message is that the economy, for now, is outperforming initial expectations with the speed of tightening. The unemployment rates have allowed economies to withstand the rate rises. PCE tomorrow is Fed’s leading inflations indicator, which is set to drop to 0.3% from 0.4%.
Expected Ranges
- GBP/USD: 1.2610 - 1.2660 ▼
- GBP/EUR: 1.1570 - 1.1595 ▼
- GBP/AUD: 1.9070 - 1.9150 ▲
- EUR/USD: 1.0880 - 1.0922 ▼