Doom and gloom return to the forefront of markets today as the United States Dollar trades in mixed ranges against most majors.
Overview
Federal Reserve Chair Jerome Powell’s testimony to Congress yesterday did help solidify his narrative that the central bank will, in fact, raise interest rates twice more this year and hold them steady through the beginning of 2024, giving the Buck a bit of breathing room. In the face of continued inflation crises across the world, it’s becoming clear that most central banks are not near the end of their tightening cycles.
In a macroeconomic sense, the United States economy remains stronger than most in the G10 with continuing strength in the labor sector and limited risk of a recession – quite a different story from the major economies of Europe and the United Kingdom. Powell’s steady hand has proven to be quite a boon for the US as the Fed has thus far been able to put a substantial dent in domestic inflation without causing too much chaos in the broader economy. Current market expectations are for one 25 basis point hike at the end of July with a smaller chance of another one in early September.
The Fed’s path forward and the broader US economic picture strike quite a different tone from that of the United Kingdom in particular, following yesterday’s surprising news of a re-acceleration of core inflation. The Bank of England subsequently raised interest rates 50 basis points this morning in an attempt to grapple with the nation’s cost of living crisis. If the US economy can remain stronger in its fundamentals than those of its G10 counterparts, Powell and the Fed have some breathing room to wrap up this tightening cycle before other nations without causing too much damage.
What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
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EUR ⇑
Though the European Central Bank may not have quite as tough a task on hand as the Bank of England, inflation remains entrenched in the Eurozone and several hawkish speakers from the European Central Bank yesterday bolstered prices of the single currency. EUR has risen nearly 2.5% against USD since the beginning of this month as markets see more potential for rate hikes out of the region than they do from the United States.
GBP ⇑
After a shock inflation reading yesterday morning showing that core prices in the UK are not, in fact, slowing in their rise, the Bank of England’s 50 basis point hike this morning failed to bolster the Pound Sterling. The UK economy is teetering dangerously close to a recession and “stagflation” whispers have turned into yells, putting the broader health of the nation’s financial picture in the red. Investors are beginning to turn on the Pound, depressing prices this morning.
