Forex Market Analysis

Jun 29, 2022 | Currency Market Analysis

Global Themes

Central bank speeches key for trio of currencies

• BoE Bailey speech eyed
• Can Lagarde ease European recession fears?

Delivered by Steven Colangelo

British pound

BoE Bailey speech eyed

Cable loses the $1.22 handle despite the US Dollar Index (DXY) dropping 0.10% as the US Conference Board (CB) Consumer Confidence Index dropped to the lowest level since February 2021 yesterday. Investors, seeking safety, have moved into the safe-haven US Dollar as stocks declined globally due to the mounting risk of a recession.

Britain's bleak economic and political outlook further exacerbates why investors see the pound as a riskier asset and sell off the pound during times of uncertainty. Recent rising tensions between the UK Government and the European Union (EU), following the government's plans to ditch pre-agreed rules on post-Brexit trade with Northern Ireland, further underlines why investors are right to do so.

Continuing with the bleak political outlook, another potential headwind could come from Scotland where First Minister Nicola Sturgeon on Tuesday proposed another independence referendum for October 2023. British Prime Minister Johnson and his Conservative Party, which is in opposition in Scotland, strongly oppose a referendum, saying the issue was settled in 2014, but Sturgeon persists and will seek the advice of her lawyers to sidestep Johnson’s stance.

  • For today, the speech from Bank of England (BoE) Governor Andrew Bailey will remain in focus for the pound. BoE’s Bailey may also discuss bringing price stability to the UK economy. Considering the Western leaders, the UK is seldom operating above a 9% inflation rate. Therefore, a hawkish commentary looks likely.

Euro

Can Lagarde ease European recession fears?

EUR/USD slipped 0.14% close to $1.0500, undermined by the market anxiety ahead of the US GDP print. The speeches from the US Federal Reserve’s (Fed) Jerome Powell and the European Central Bank’s (ECB) Christine Lagarde will be closely monitored for any hint towards the central banks' next steps, with previous inflation-related concerns materialising into recession fears.

Yesterday, ECB chief Lagarde offered no fresh insight on the path for European interest rates at the ECB's annual forum. The ECB is widely expected to follow its global peers by raising interest rates in July for the first time in a decade to try to cool accelerating inflation, though economists are divided on the magnitude of any hike.

  • That said, ECB’s Lagarde has often failed to impress EUR/USD buyers, but the recent track record of Fed Chair Powell isn’t good as well, which in turn will keep the pair traders on their toes ahead of today’s speeches. Should Powell manage to defend hawkish policy measures, the US dollar can hold the latest gains.


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