News & Analysis


While sterling ultimately closed flat against the dollar in yesterday’s session, intraday price action remained choppy as GBPUSD traded within a percentage point range. Similar to the euro and US dollar, the pound nosedived following the downturn in PMIs in June, but unlike its European counterpart, the drop in the UK readings was less severe. This enabled the pound to retrace the PMI induced slump throughout the day. Ultimately, continued hawkish commentary from the Fed saw the dollar post a comeback, which left GBPUSD flat on the day. This morning, the pound remains trading relatively flat on the day despite a string of consumer data. Released one-minute past midnight, consumer confidence data for June continued to plumb fresh all-time lows as the cost-of-living crisis persists. Meanwhile, May’s retail sales proved a mixed bag. Although both headline and core retail sales exceeded expectations by 0.2 percentage points with readings of -0.5% and -0.7% MoM respectively, this was largely due to a downgrade in last month’s data. On a yearly basis, the data looks much more severe with headline retail sales contracting 4.7%, while the measure excluding fuel printed at -5.7%. In response to the data, the pound briefly dropped against both the euro and the dollar, but the move was quickly retraced. Gilt yields opened lower again this morning, in line with the broader bond move, while focus will rest on money market pricing as expectations of Bank Rate by year-end have already fallen from 3% to 2.75% in the past week. This is especially the case as BoE Chief Economist Huw Pill is set to speak at 14:30 BST, just ahead of Jonathan Haskel at 14:45. Note, Haskel was one of the three BoE members who voted for a 50bp hike last week.


The euro started yesterday’s session on a tentative note as market conditions remained fairly risk averse. However, the release of preliminary PMIs for June out of France and Germany saw the single currency drop like a stone, after which it struggled to recover. After being propped up by reopening tailwinds, the eurozone economic activity indicators finally showed a marked slowdown. The eurozone composite measure, released shortly afterwards at 09:00 BST, encapsulated this slowdown as it fell from 54.8 to 51.9, with both services and manufacturing experiencing a downturn. Although EURUSD posted a slight comeback following the slip in US PMIs that afternoon, the damage in the morning session was too severe to be reversed that day, ultimately leaving EURUSD 0.41% upon close. This morning, with equities better bid in futures markets and Treasury yields seemingly bottoming out for the time being, recession concerns have been side-lined. While the backdrop is supportive of a recovery in EURUSD, the single currency has also been assisted by hawkish commentary from Bank of Slovenia Governor Peter Kazimir, who stated the ECB could hike 200bps to bring rates to 1.5% in the next 12 months. Further ECB speakers are on the schedule for today, with de Cos set to speak at 11:30 BST, followed by Guindos at 12:30 and Centeno at 15:15 BST.


Recession fears stood front and centre for markets again yesterday, especially after a string of PMIs out of Europe and the US undershot expectations. There were common themes among the purchasing managers’ reports; inflation conditions are weakening demand conditions and thus weighing on new orders, while higher input costs continue to squeeze manufacturers margins. In the US, the S&P global flash PMI fell 2.4 points to hit the second lowest reading since July 2020 at 51.2. While most of the monthly drop came in the manufacturing sector as it fell from 57.0 to 52.4, the services reading remained notably weak at 51.6. S&P chief economist, Chris Williamson, stated that the “survey data is consistent with the economy expanding at an annualized rate of less than 1% in June, with the goods-producing sector already in decline and the vast services sector slowing sharply”. Following the release of the PMIs, Treasury yields tumbled to their lowest point on the day while the dollar unwound gains at the margin. However, hawkish comments from Fed Governor Michelle Bowman soon lifted Treasury yields off of their intraday lows, providing the dollar with a fresh pair of legs to run higher. Ultimately, JPY proved to be the only currency within the G10 to notch gains against USD on the day, while CHF and GBP closed flat against the greenback.


The loonie slipped a further 0.4% against the dollar in yesterday’s session, largely due to recession fears impacting growth-sensitive currencies like CAD. However, the Canadian dollar was also weighed down by a slip in the US PMI data. A slower growth backdrop in the US naturally filters through to a slower growth outlook in Canada due to the economies close trading relationship. While this morning the loonie is reversing some of yesterday’s losses, as it trades 0.2% higher at time of writing, there is very little scheduled in terms of economic data to support the loonie throughout the day. Whether the Canadian dollar closes the day out on a stronger footing largely depends on the equity and commodity backdrop. The only notable data released today is the SEPH payroll report for April. However, although the release provides more colour around labour market conditions in Canada, its lagged nature tends to mean it has little market impact.



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