Published: 06/07/2022 By ECAPThe main news headline in the FX market on Tuesday was undoubtedly the sharp sell-off in risk assets against the safe-haven US dollar, as heightened global recession concerns sparked a fresh flight to safety. Among the majors, sterling fell back below the 1.20 level on the greenback, on a day that the Bank of England warned that the outlook for Britain and the world had ‘darkened’. Investors will be keeping close tabs on speeches from a handful of MPC members in the second half of the week for clues as to the magnitude of upcoming rate hikes.
Perhaps the most noteworthy move was that of the euro, which fell to fresh two decade lows below the 1.03 level on the US dollar, sparking fresh calls that parity in the EURUSD pair could soon be on the way for the first time since 2002. Talk of possible recessions have intensified in the bloc in recent weeks, as economic data begins to shows signs of a slowdown and the ongoing energy crisis in Europe takes a turn for the worse. Uncertainty over future gas supplies from Russia, and the commencement of worker strikes in Norway’s oil and gas sectors, triggered a fresh move higher in European Natural gas futures yesterday.
The collapse in oil futures, and general risk-off mode induced by rising global recession concerns, was also bad news for emerging market currencies. European currencies largely underperformed on yesterday, including the likes of the Polish zloty, Hungarian forint and Czech koruna, which were all down anywhere between around 2-3%. Meanwhile, the antipodean currencies (AUD and NZD) also fell sharply, in part due to the collapse in oil prices (down almost 10% for the day), while the Norwegian krone fell nearly 3% as worker strikes in the country’s energy sector begin.