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Dollar still comfortable in pole

Dollar still comfortable in pole

The Pound dropped after the UK inflation data release as the decline in underlying inflation gave rise to doubts whether the Bank of England would tighten policy aggressively. Sterling did manage to find support on dips with support below 1.2200 against the dollar amid evidence of short covering (buying to close out positions). Slightly better risk appetite also helped highs above 1.2300 against the dollar as the US currency retreated, but Sterling eventually retreated to 1.2260 while the Euro posted significant gains to 1.1600.

Eurozone consumer confidence dipped further in June from -21.2 previously and weaker than consensus forecasts of -20.5 with market confidence in the Euro-zone economy remaining fragile. German Finance Minister Lindner stated that the economy is already in a crisis due to cuts in gas supplies. The EU granting Ukraine candidate status increases fears of retaliation measures on energy supplies from Russia.

Fed Chair Powell stated that the (US) central bank is strongly committed to bringing inflation down and he anticipates on-going rate increases, adding that inflation had clearly surprised to the upside and further surprises could be in store. When asked whether a 1% rate hike was possible he stated that nothing is off the table, adding that financial conditions have tightened significantly and investment growth appears to be slowing while the housing sector is softening. He acknowledged the possibility that rate rises could cause a recession.

Two UK by-elections will be held on Today with the results due tomorrow and two defeats for the Conservatives would trigger fresh uncertainties over Prime Minister Johnson’s future. Sterling drifted lower to 1.2250 on Thursday with the second day of the rail strike reinforcing generally negative sentiment. The Euro opens around 1.0570 against the dollar.

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