GBP: As the UK government seeks to implement fiscal instruments in the fight against persistent inflation, the British Pound has somewhat given up the gains earned after last week’s recovery move following the BoE’s rate hike. Jeremy Hunt, the finance minister, rolled back the promise of tax cuts, citing that its implementation could propel inflationary pressures and offset the efforts yet made by the central bank to bring down inflation. For now, one of the effects of persistent UK inflation is the dampening image of the Conservative Party. Ultimately, the perception of the British Conservative Party may deteriorate further when UK FM Jeremy Hunt consults with industry authorities on the need for companies to refrain from raising profit margins in order to capitalise on strong demand, or “greed-flation.”
EUR: The euro managed to gain some momentum this morning, recovering somewhat from last week’s losses when it fell to a one-week low after PMI data revealed that business expansion in the eurozone had stopped in June. In fact, after Friday’s poor release of Eurozone PMI prints, market participants appear hesitant to make bold bullish bets around the common currency, which worsens a policy conundrum for the European Central Bank. Looking forward, the widely anticipated Ifo business survey from Germany is scheduled to be released later in the day and is anticipated to reveal that business confidence in the biggest economy in the eurozone is still declining. However, given the lack of any pertinent economic data from the US or the Eurozone that might have moved the market, traders will look to ECB President Christine Lagarde’s speech for some impetus.
USD: The U.S. Dollar dipped slightly in early European trade this morning but held near its recent one-week high as risk aversion increased due to concerns that prolonged monetary tightening cycles could harm global growth and the political unrest in Russia over the weekend. In fact, the weekend’s news of the Wagner mercenary group’s rebellion in Russia gave the dollar a quick boost. The following agreement with President Vladimir Putin, which put an end to the march on Moscow, has, however, evaporated this. There is still a great deal of uncertainty because it is unclear how Putin would react to this open challenge to his authority. A number of major central banks, including the U.S. Federal Reserve, have signalled additional interest rate hikes this year as they tried to combat stubbornly high inflation, so the U.S. currency had already been in demand before to the weekend’s Russian turmoil. In the end, the hawkish message that Fed Chair Jerome Powell advanced throughout the two days of testimony before Congress is likely to have provided support for the dollar.
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