European Central Bank planning to hike rates for the first time in years 

GBP/USD

The dollar rally that was triggered by US inflation data on Wednesday last week stayed intact on Thursday. Due in large to the US Dollar Index (DXY) reaching its strongest level in nearly 20 years during the American session. To counter this, Federal Reserve Governor – Christopher Waller remarked that the markets have gotten ahead of themselves, when pricing a rate hike in July of 100 basis points. This led to the  DXY erasing a large portion of its daily gains. Furthermore, Waller commented that he was in favour of a 75 bps increase but noted that he could lean toward a bigger hike if retail sales and housing data come in stronger than expected.

 

EUR/USD

Fears of a US recession have dominated the headlines in the last few months. Still, the focus is slowly shifting to Europe, as the situation in the Union is even more worrisome than that in America.

The Ukraine war results in global food and energy shortages, with the EU suffering the most as it depends on Russia for oil and gas provision. 

The US Federal Reserve leads the list of central backs based on aggression. The central bank has pushed rates higher to a range of 1.50%-1.75%. The European Central Bank, on the other hand, lags behind as it plans to hike rates by 25 bps for the first time in years on its meeting this Thursday. The imbalance between central banks partially explains EUR/USD weakness, alongside the fact that the crisis in the Union is deepening.

 

Economic Calendar for the week ahead:

• 19/07/2022: UK – Unemployment rate
• 19/07/2022: EU – Core Inflation Rate YOY 
• 20/07/2022: UK – Core Inflation Rate YOY
• 21/07/2022: EU – Interest Rate Decision
• 22/07/2022: EU – S&P Global/CIPS Manufacturing PMI
• 22/07/2022: UK – S&P Global/CIPS Manufacturing PMI