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Weekly market update 25th June – Dollar retreated from its recent high amidst global recession fears

Weekly market update 25th June – Dollar retreated from its recent high amidst global recession fears

1. The Dollar extended its high volatile performance this week, with an overall fall to 104.2 at the end of the week. Despite the recession fears and poor consumer sentiments, the Fed’s hawkish interest rate hikes have helped maintain the dollar strength. Fed Chair Powell testified before the Senate Banking Committee and the House Financial Services Committee on Wednesday and Thursday this week, reiterating the FOMC’s statement of bringing inflation down. According to CME Group’s FedWatch Tool, the probability of a 75 basis points rate hike in July is more than 93%, with a 100 basis point hike not being ruled out. In the near term, recession fears will be prevalent with major central banks tightening their monetary policies to rein in inflation. On the data front, flash manufacturing and services PMI data pointed to slower service sector output growth and first contraction in manufacturing production in two years. In the coming week, Home Sales data and Manufacturing PMI are likely to reflect a slowdown in the US economy and easing in the expansion of business activities.

2. Euro traded against the greenback at 1.055 but remained under pressure with widening interest rates gaps between the Fed and ECB. Worries regarding the soaring inflation and weakening economy have increased uncertainty among households and weighed down further on low consumer expectations since the start of the Russian-Ukraine War. Eurozone composite PMI dipped to 51.9 in June from 54.8 in May, hitting its lowest level since pandemic lockdowns in February 2021. Germany’s flash manufacturing and services PMI data pointed to a sharp loss of momentum in the Eurozone’s largest economy, weighed down by falling exports and weaker domestic growth. Weaker factory activity growth data suggested that the Eurozone’s growth is hampered by sustained inflation and reduced bets for the ECB to speed up its rate hikes. This week, investors will be awaiting the release of inflation figures in the Eurozone on Friday.

3. Meanwhile, the Pound is still largely undermined by political risks and recession fears, barely holding against the greenback at 1.226 this week. Release of UK inflation data revealed a 9.1% year on year inflation rate in May, hitting a 40-year high. Consumer prices rose 0.7% month on month in May, slightly above expectations of 0.6% but well below the 2.5% increase in April, indicating a slowdown in inflation. The Bank of England have continued to raise interest rates at a slower rate as compared to the hawkish Feds to prevent tipping the economy into a recession, but is hinting at a larger rise in subsequent meetings to curb the inflation.

4. Commodity currencies generally maintained its overall strength this week, with the Aussie trading slightly above 0.69, similar to the previous week. With the release of the June Monetary Committee meeting minutes, RBA revealed expectations of inflation rates hitting 7% by December but maintained positive in bringing the rate back towards their 2 – 3% target next year. In the coming week, notable publications include the Retail Sales report for May which is expected to remain the same as April at 0.9% month on month. New Zealand Dollar fell marginally, ending the week slightly below 0.63 after local consumer confidence index fell from 92.1 to 78.7 for the second quarter of the year, due to soaring inflation and rapid policy tightening by RBNZ. Meanwhile, Canadian Dollar rose slightly to 0.775 on Friday, despite the 7.7% year on year rise in inflation greater than the expected 7.3%, raising expectations for a greater rate hike by Bank of Canada next month.

5. WTI crude futures extended its decline this week, hitting a one-month low of below $108 per barrel. Oil prices tumbled with the aggressive tightening of monetary policies globally, as well as with the Fed’s declaration in bringing prices under control even if it would risk economic downturn. Furthermore, recession fears weighed on fuel demand, pulling prices further down. Elsewhere, gold prices ended the week at the $1830 range, remaining relatively stable amidst the uncertainty as bullion benefited from its safe-haven status and hedges against inflation

Salzworth Asset Management