Confidence in US outlook remains fragile
The Euro posted gains after Monday’s European open and maintained a firm underlying tone, although gains were limited into the US open. Markets were still concerned over the Euro-Zone outlook, especially given reservations over gas supplies and the EU energy commissioner warned that serious disruption to gas supplies is likely.
Confidence in the US outlook remained more fragile with markets fretting over the recession risks. Concerns over the US outlook were significant in undermining potential dollar support. Markets also moved in Federal Reserve interest rates from 3.5% to 4% earlier in the month which sapped support for the US currency.
Markets are very confident that the ECB will increase interest rates at the July and September meetings. The Euro also gained an element of support from expectations that the deposit rate will move out of negative territory in September.
Narrow ranges prevailed in early Europe on Tuesday with the Euro trading around 1.0558.
The UK currency was also hampered by a slightly less robust risk tone after the New York open, although dollar weakness was a significant element towards the European close. Sterling still settled below 1.2300 against the dollar and traded around 1.2275 on Tuesday with the Euro around 1.1600
There were further reservations over the risks of a trade war with Europe as the government brought the Northern Ireland Protocol Bill to the House of Commons. UK Foreign Secretary Truss stated that the government did not rule out using Article 16 down the line.