Daily Spectrum FX Report
Sterling
Sterling moves were very much subdued today as they have been all week leading into today's G7 summit where Governor Bailey will be speaking in a panel amongst ECB Lagarde and Fed Powell.
The key message to look out for is whether we see any change in Bailey’s view on a 0.50% rate hike in August. Previously the governor had stated the Bank was open to the idea depending on inflation conditions but any change or guarantee on the 0.50% hike could well move sterling.
Also, at 2.15pm new MPC external member Swati Dhingra will be speaking and so it will be interesting to see if she is in the camp for a 0.25% or 0.50% rate hike.
Euro
Euro moves were marginally lower yesterday as the currency continues to consolidate within its ranges. As above the key thing for markets today will be Lagarde’s comments in the G7 meeting in Sintra. Focus will be on any comments surrounding interest rate hikes as well as looking out for any new details for the ECB’s anti-fragmentation. If we see Lagarde reiterate hawkish comments made by the other members, then we could see the euro supported.
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Current market expectations are pricing in for the year-end rate to be at 1.5%.
German inflation figures will also be released today, expected to rise 8.8% year on year and we have the release of June's economic industrial and services confidence.
USD
Dollar was well supported yesterday ahead of the G7 meeting. Fed member Mary Daly acknowledged that US growth may fall below 2% as the Fed continues to hike rates but denied hiking rates would put the economy into recession.
Fed Powell’s comments will be in focus in Sintra and no doubt he will be questioned on the possibility of putting the US into a recession with the Fed’s monetary tightening plan and so his answers back will be of interest. Overall though, it seems very unlikely for Powell to veer away from his recent comments on the Fed hike plan and unless we see an appetite for risk come in and we see a rally in equity markets, only then could we see the dollar come off.
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