Daily Analysis Report 20 June '2022
The euro is gaining ground versus the US dollar, recovering from Friday’s loss. Even though the critical requirements for this arose on June 16, when the instrument displayed the most active increase in recent weeks, the euro failed to conclude the week in the “green” zone. Investors’ expectations of the European Central Bank starting an interest rate tightening cycle are supporting EUR/USD quotes (ECB). Last week, the regulator convened an emergency meeting to explore how to reduce the risks of a potential increase in borrowing costs for the bloc’s most vulnerable economies.
The European Central Bank (ECB) intends to hike interest rates at its July meeting. Meanwhile, the US Federal Reserve is tightening its “hawkish” attitude, correcting the rate by 75 basis points for the first time since 1994 last week, in response to earlier frightening inflation statistics that rose again in May following a minor correction in April. Representatives from the American regulator and US Treasury Secretary Janet Yellen have expressed pessimism, prompting traders to avoid taking excessive risks.
The British pound is weakening versus the US dollar, having recovered from a severe drop last Friday. GBP/USD is waiting for new drivers to arrive on the market before attempting 1.2250 for a breakout. The Bank of England’s interest rate meeting provided moderate support for quotations last week. The bank became the first big bank to be “hawkish” since the commencement of the coronavirus epidemic when it raised its interest rate by 25 basis points to 1.25 percent, marking the fifth straight hike since December 2021. At the same time, the UK’s inflationary risks remain high, and economic growth is fast declining, threatening a full-fledged recession.
According to current projections, UK GDP would decrease by 0.3 percent in Q2 2022, which is not much less than in May. Investors are anticipating the release of May consumer price dynamics numbers in the UK on Wednesday. According to current predictions, inflation is expected to fall from 2.5 percent to 1.9 percent but accelerate year over year from 9 percent to a new high of 9.1 percent.
The AUD/USD currency pair steadily rose after a steep drop on Friday. The trading instrument is currently testing the level of 0.6960 for a breakout; nevertheless, analysts’ concerns about a worldwide economic downturn hampered further upward dynamics of the asset. Several global financial regulators, including the US Federal Reserve and the Bank of England, raised interest rates last week, with the US Federal Reserve setting a new high of 75 basis points since 1994. Central banks are rushing to curb increasing consumer prices, compromising the prospects for economic growth, while external forces alter little.
The Australian dollar strengthened on Thursday as a favorable report on the country’s labor situation was released. The Employment Change increased by 60.6K in May, after growing by only 4.4K the month before, despite economists expecting only a 25K increase. At the same time, the unemployment rate stayed unchanged at 3.9 percent, despite predictions of a drop to 3.8 percent. On Tuesday, investors await the release of the Reserve Bank of Australia’s meeting minutes and the speech of its governor, Philip Lowe, who may shed light on the possibilities for additional monetary policy tightening.
The US dollar stabilizes between record highs and the 135.00 mark, displaying multidirectional trading behavior. Last week’s attempt by the Japanese currency to show corrective growth failed, and the dollar managed to reclaim all of the positions it had lost in the previous two days on the last trading day. The Bank of Japan maintains its ultra-loose monetary policy, keeping the interest rate at –0.10 percent and the yield on 10-year bonds around 0%, but expanding the program to buy an unlimited number of them at 0.25 percent. Only one of the board members voted to begin tightening monetary policy, and the outcome was practically unanimous. The regulator sticks to the prior recommendations, attempting to keep inflation continuously over 2%. Now that all of the conditions are in place, the financial authorities want to finish the war against deflation, even if it means sacrificing the national currency.
Gold prices are slightly higher at the start of the week, following a fall last Friday, when the instrument retreated from its local highs of June 13. The conclusions of meetings of the world’s leading central banks, particularly the US Federal Reserve, which opted to raise the rate by 75 basis points all at once, put downward pressure on the market. The Bank of England and the Swiss National Bank both announced interest rate hikes, raising the rate by 50 basis points at once. Meanwhile, fears of a dramatic global economic growth downturn support the instrument marginally.
Supply networks are still being disrupted, and high energy and other commodity prices are worsening the problem. As a result, global financial regulators’ activities aimed at tightening monetary conditions are pushing the economy into recession, as is the case in the UK and the EU.