IFX Market Report: Friday 24th June 2022

The US dollar remains stable but heads for its first weekly decline of the month as investors continue to assess the Federal Reserve's policy direction and wonder if aggressive rate hikes could trigger a recession. The dollar index, which measures the greenback against six currencies, fell slightly below 104.00 in Asia. The drop wiped out a small rise recorded the previous day, which was mainly due to a drop in the euro after weak PMIs reduced expectations of a tightening of monetary policy by the European Central Bank. Fed Funds is expected to rise above 3% by the end of the year, so dollar interest rate support should ultimately continue to strengthen.

Dollar trading has been choppy this week, with markets now betting on more cautious policy action from the Fed after another 75 basis point rate hike expected in July. Fed Governor Michelle Bowman said on Thursday she favoured 50 basis point hikes at "next" meetings after the July one. Meanwhile, Fed Chairman Jerome Powell in his second day of congressional testimony stressed the central bank's "unconditional" commitment to controlling inflation, even amid growth risks. .

Meanwhile, the ECB is struggling to contain peripheral spreads and the Eurozone is facing more significant stagflation challenges - which is hardly enticing for the Euro. EURCHF has been in a negative short-term with a greater than average amplitude. In addition, the short-term moving averages crossed downwards.

Cable saw US Dollar make losses yesterday with disappointing initial jobless claims figures and PMIs. GBPUSD opened at 1.2205 and close slightly under 1.2257.

GBPEUR also saw the EUR make losses with poor PMI results in the Eurozone as the pair opened at 1.1596 and closed to 1.1633.

EURUSD opened at 1.0502 and closed at 1.0521, marking small gains for the EUR.

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