Market Report : 26.06.23

Published: 26/06/2023 By ECAP

Sterling has surrendered partial gains made after last week’s recovery move following the BoE’s rate hike as the UK government is looking to inculcate fiscal tools in the battle against stubborn inflation. For now, one of the consequences of persistent UK inflation is the dampening image of the Conservative Party as Finance Minister Jeremy Hunt rolled back the promise of tax cuts, citing that its execution could propel inflationary pressures and offset the efforts yet made by the central bank to bring down inflation. Ultimately, the image of Britain’s Conservative Party could dampen further as UK FM Jeremy Hunt is in discussions with industry regulators that businesses must not raise profit margins, benefitting from upbeat demand, so-called greed-flation.

The Euro managed to muster some strength this morning, bouncing to a degree following last week’s losses when the single currency slumped to a one-week low after PMI data showed that eurozone business growth virtually stalled in June. Market participants seem reluctant to place aggressive bullish bets around the shared currency in the wake of Friday's disappointing release of Eurozone PMI prints, which deepens a policy dilemma for the European Central Bank. Looking forward, the release of the widely-watched Germany's Ifo business survey is due later in the session and is expected to show business confidence in the eurozone’s largest economy continuing to sour. Nevertheless, in the absence of any relevant market-moving economic data, either from the Eurozone or the US, market participants will look to ECB President Christine Lagarde's speech for some impetus.

The US Dollar edged lower in early European trade this morning but remained close to its recent one-week high as the potential for drawn-out monetary tightening cycles hitting global growth as well as the weekend’s political turmoil in Russia boosted risk aversion. The dollar received an immediate boost over the weekend from the news of an uprising in Russia by the mercenary group Wagner. However, this has dissipated with the subsequent deal with President Vladimir Putin which halted the march on Moscow. The situation remains fluid and how Putin responds to this blatant challenge to his authority remains to be seen, creating a great degree of uncertainty. Moreover, the US currency had already been in demand ahead of the weekend’s Russian crisis as a number of senior central banks, including the US Federal Reserve, had signalled further interest rate hikes this year as they attempt to combat still elevated inflation. Ultimately, what has likely offered backing to the dollar has been the hawkish message pushed by Fed Chair Jerome Powell in the two days of Congress testimonies.