The U.S. Dollar is trading in mostly favorable ranges as the earlier trading sessions across the globe seem scared of the costs to come for the second half of the year.
Overview
With disinflation currently happening, markets were hoping that the revelation of slower prices would mean less tightening to come after over a year and a half of interest rate hikes, primarily led by the Fed. Although many central banks have tried to keep up, they seem unable to continue to move beyond record-high borrowing costs after their hawkish measures to combat record-high inflation.
The current concern is that the Fed is not looking to pivot anytime soon and seems willing t continue to raise interest rates in the face of a solid economy. Not all other national economies share in the same triumphant expansion since their post-pandemic re-openings, and they doubt their economic growth will not be hurt in the long term by contractionary monetary policy.
Yields on bonds are rising while inflationary pressure in Europe is feared, once again, after the escalation of the Ukraine-Russia conflict over the weekend threatened more disruption for the grain trade. This week is light in general for risks events, so markets will weigh Fed officials’ commentary starting today, we get inflationary data for both China and the U.S. mid-week, and Friday will give us insight into the U.K. GDP as well as U.S. Consumer Sentiment.
What to Watch Today…
- No major economic events are scheduled for today
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GBP ⇓
Sterling weakened, and it is not far from being at its weakest point in a month as the outlook for the U.K. economy looks bleak per many economists. While the country has avoided many models forecasting earlier recessionary periods that did not materialize, the fear is that trouble for Europe will mean ongoing inflation while the already high borrowing costs bode poorly for investment across many sectors. This is the very essence of “stagflation,” a combination of low economic growth and ongoing inflationary surges. We will get Q2 Gross Domestic Product and June Industrial Production on Friday, both expected to avoid contraction.
AUD ⇑
Some currencies are making a turnaround as the morning progresses, led by Australian Dollar and New Zealand’s “Kiwi” as hopes of China stimulus and a successful World Cup currently taking place bode well for economic prospects. Although news of drone attacks has soured hope for a resolution on the grain-export front for Ukraine, the “Antipodean” economies are more isolated from this negative impact. We see volatility high as the world readjusts its forecast of a global “soft-landing” since it is looking at the moment that America’s economy is the one to outperform while others drag and struggle. This view has varied from month to month throughout the year.
