Markets Report - 20 June 2022

A daily breakdown of the markets for the 20th June 2022, provided to you by Sterlex.

🇪🇺💶Paschal Donohoe, chief of the pan-eurozone group of finance ministers, said in an interview with the Financial Times (FT) on Monday, Eurozone is not at risk of a sovereign debt crisis seen a decade ago, as the bloc’s economies are in ‘completely different’ shape at present. European Central Bank (ECB) Governing Council member Olli Rehn said over the weekend that he wants to ensure that the fragmentation risks do not cause undue turbulence on government bond markets. European Central Bank Governing Council member Yannis Stournaras reiterated on Monday that they must remain focused on medium-term inflation objectives. Stournaras further added that the monetary policy could afford to be gradual. The ECB announced an introduction of a new instrument by its July policy meeting, which has calmed markets somewhat. They forecast EUR/USD at 1.10 by end-June 2023. In the view of economists at Deutsche Bank, USD strength could start to peter out in the coming months. ECB President Christine Lagarde will testify before the Committee on Economic and Monetary Affairs of the European Parliament. The Governing Council held an emergency meeting Wednesday amid a surge in Italian yields. The shared currency holds its ground early Monday.

🇬🇧💷UK Junior Treasury Minister Simon Clarke warned in a statement on Monday, if the government gives above-inflation pay awards, they will be in a difficult place, in terms of bringing down inflation. This, along with the UK-EU impasse over the Northern Ireland Protocol of the Brexit agreement, should cap gains for the GBP/USD pair. Hence, it will be prudent to wait for strong follow-through buying before traders start positioning for an extension of the recent bounce from the YTD low touched last week. Expectations that the Bank of England would opt for a more gradual approach to raising interest rates could act as a headwind for the British pound. This might further hold back traders from placing aggressive bullish bets around the GBP/USD pair. There isn't any relevant economic data due for release from the UK on Monday and the US markets will be closed in observance of Juneteenth National Independence Day. That said, a scheduled speech by St. Louis Fed President James Bullard might influence the USD price dynamics and provide some impetus to the GBP/USD pair later during the early North American session.

🇺🇸 🏦The dollar, in the meantime, remains well supported by the Fed’s divergence vs most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy, all factors supportive of a stronger dollar in the next months. The greenback gives away part of Friday’s gains and recedes to the 104.30/20 region when tracked by the US Dollar Index (DXY) on Monday. Sellers seem to have regained the upper hand around the greenback and force the index to shed some ground following Friday’s moderate bounce. The index came under pressure after climbing to new highs around 105.80 in the wake of the Fed’s 75 bps rate hike on June 15.