IFX Market Report: Monday 25th July 2022

This week will see the Fed increase interest rates again after inflation reached 9.1% in June in the US. Markets are expecting a 75bps increase, which will set the Fed fund’s rate to 2.5%. The hike will have a big impact on consumer finances as credit cards, adjustable-rate mortgages, car loans and student loans often have variable interest rates and will become more expensive. The goal is to decrease consumption to drive prices down and limit inflation.

However, despite the last rate increase in June of 75bps being the most aggressive since 1994, markets fear a second 75bps hike may not be enough and there is a chance the Fed could follow the Bank of Canada who raised rates by 100 bps at their last meeting despite a forecast also set at 75bps.

The American GDP figures should follow the next day, and after a bad Q1 which saw the American economy contract by -1.6%, another contraction of the economy could signal a global recession This could be costly for the US dollar with support packages likely on the cards if this proves to be the case. Expectations currently see the American economy back in growth with a 0.4% expansion.

GDP figures will also be announced this week in France, Germany and the Eurozone along with the inflation figures from most Eurozone countries on Friday. After disastrous PMI results last week, the figures will be a good indication of the next steps to take for the ECB, as its interest rates increase did not overturn the pessimistic markets expectations for the European currency and its TPI instruments to support bond yields have also failed to impress investors.

In the United Kingdom, tonight will see the first TV debate between the two finalists of the Tory leadership race. Rishi Sunak and Liz Truss are set to debate live on BBC as the parliament summer recess begins and with ballots about to be distributed to Conservative party members. The two candidates oppose each other on the economic steps to take to fight inflation and a potential global recession, but tonight’s debate could focus on the NHS which is facing the worst staffing crisis in its history with the public service being short of more than 12,000 hospital doctors, and 50,000 nurses and midwives just in England.

Cable saw the Pound regain momentum with the pair gaining 1.27% over the week. GBPUSD opened at 1.1877 Monday and closed at 1.2002 on Friday.
EURUSD followed a similar trend last week with the pair gaining 1.22% thanks to the ECB’s interest rate decision. The pair opened at 1.0178 and closed at 1.0228.
GBPEUR remain stable with the pair virtually immobile over the week. The pair opened at 1.1755 and closed at 1.1751 last week.

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