So the USA is officially in a recession with two consecutive months of negative growth now in the bag. But the FED isn’t paying attention, playing it down as just a technicality caused by fuel and food costs spurred on by the war in Ukraine. But the FED also described inflation as transitionary, which didn’t work out well. Still, it is a textbook recession and has already spooked investors, with the dollar DXY dropping from its recent all-time high of 109 last month to 105 today and dollar demand drying up. Could this be the mid-year pivot towards EUR many predicted?
Likely, we won’t see another FED rate hike this month as they break for summer recess, and Powell will want to ensure his actions do not fuel more negative growth. Inflation remains high, and interest rate rises have done little to squash it. Data released on Friday showed consumers are spending less on goods and more on services, pointing to a shift in buying patterns due to inflation.
Over in Europe, the ECB delivered its first rate hike in over a decade and is on route to playing catch-up with the FED. With lots of room to hike, investors will see the growing yield in EUR as advantageous. However, zooming out, we are still at historic lows, and the market opens today at 1.0250, but this could signal the turning point for the two most significant currencies.
In the UK, The Bank of England will likely deliver a 50bp rate hike this week, but as with the US, rates have done little to curb inflation and slowed the general economy toward negative growth territory. The UK housing market has so far been unaffected, but with more hikes on the way, homeowners and buyers will undoubtedly feel the pinch which could begin a downturn.
What to watch this week:
Monday
USD ISM Manufacturing PMI(Jul)
Tuesday
USD FED Speeches
Wednesday
EUR Retail Sales (YoY)(Jun)
USD ISM Services PMI(Jul)
Thursday
GBP BoE Interest Rate Decision
GBP BoE’s Governor Bailey speech
Friday
USD Nonfarm Payrolls(Jul)