The maco outlook for markets remains unchanged. Central Banks around the globe are preparing to fight off a recession whilst reigning in runaway inflation. Markets are in “risk-off” mode for the foreseeable which means dollar strength looks set to continue.
Over in the USA, the Federal Reserve has taken a hawkish approach and is determined to bring inflation down at any cost. Last week they delivered a historic 75bps interest rate hike putting the central bank way out in front of other major banks in terms of rates. As deviation between the FED and ECB continues to grow we are likely to see continued dollar strength whilst the Europeans play catch up.
Over in the UK, the Bank of England has taken a more dovish approach and delivered a 25bps hike last week due to a shrinking economy. Last month’s GDP contracted by -0.3, another month of negative growth would officially put the UK in a recession. BoE governor Bailey also believes that inflation will peak at around 11% meaning more interest rate hikes are on the way.
In Europe, inflation isn’t far behind at 8.1%, yet interest rates remain negative at -0.50%, so there is plenty of room to hike, and we may see a stronger EUR in the latter half of the year as rates begin to rise. However, as the war continues with no clear end in sight and oil and food prices continue to increase, the dollar will look a much safer bet in the short term whilst rates continue to deviate.
The week ahead is relatively quiet, but we have some important inflation indicators from the US, UK and EU, as well as speeches from figureheads which will build a case for the central banks’ next moves.
Wednesday
GBP Consumer Price Index (YoY)(May)
USD Fed’s Chair Powell testifies
Thursday
EUR S&P Global Composite PMI(Jun)
GBP S&P Global/CIPS Services PMI(Jun)
USD Fed’s Chair Powell testifies
USD Bank Stress Test Info
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