UK inflation data supports Hawkish agenda
- 22/06/2022: UK – YoY Inflation rate
- 22/06/2022: US – Fed Chair Powell Testimony
- 23/06/2022: US – Fed Chair Powell Testimony
- 23/06/2022: UK – S&P Global/CIPS Manufacturing PMI
- 24/06/2022: US – Michigan Consumer Sentiment
Following a volatile week that saw GBP fall to 2-year lows vs USD, GBP eventually consolidated gains above 1.2200. The pair had recovered from lows of 1.1933 but faltered due to the differing monetary policy between the FED and the BOE.
UK inflation data has been released this morning at 9.1%. This is a little higher than the prior print of 9%. Having the inflation figure continually remain equal to or above 9% is a sign of an imminent recession. This will continue the Hawkish agenda of the Bank of England (BOE) in its July monetary policy meeting and comes after the BOE elevated its interest rates by 25 basis points last week, which has increased interest rates officially to 1.25%.
Volatility in the equity market and the threat of persistent inflation have aided the dollar’s climb over the last several months. The FOMCs 75-basis-point rate hike has helped calm inflationary fears, but the threat of slower economic growth now weighs heavily on sentiment, although the Fed appears willing to sacrifice economic growth to temper prices.
The Greenback’s major focus this week is the testimony from Federal Reserve Chair – Jerome Powell. The central bank chief is expected to provide his bi-annual address on monetary policy to Congress. Powell will speak before the Senate Banking Committee on June 22. Agenda talking will focus onthe economic response to the Covid pandemic and the overall strength of the US economy. The Greenback may rise if Mr. Powell firms up already strong expectations for further tightening.
Last week, ECB President Christine Lagarde mentioned a special anti-fragmentation tool. The purpose of which is to reduce bond market volatility as the Bank raises interest rates. However, when asked about it, Lagarde elected not to give any specifics, leading to undesirable moves in the bond market.
In an attempt to address unwarranted moves in the bond market, The ECB called an emergency meeting with many speculating that they would reveal the tool. Instead, the Governing Council agreed to direct APP reinvestments to the markets that require the most attention which lead to EUR/USD clinging to gains above 1.0500.