GBP
Sterling slipped for a third straight week last week, falling to new lows since March 2020, amid ongoing political uncertainty, broad-based risk aversion, and continued pessimism towards the UK’s ‘stagflationary’ economic outlook.
There seems to be few signs of respite for the pound on the horizon, with political stability unlikely until September, and the economic outlook being set to deteriorate further rather than improve.
Looking ahead, a busy week awaits, with the latest data on employment, inflation, and retail sales all due, marking the last major economic releases before the Bank of England’s next decision in early-August.
EUR
The EUR also had a torrid time last week, dipping below parity with the greenback for the first time in 20 years, as the probability of a winter recession in the eurozone surges, and speculation grows that Russia will entirely cut off gas supplies to the continent.
This leaves the ECB in a tricky spot, with the window for rate hikes narrowing; a 25bps hike is likely this Thursday, though that leaves the EUR vulnerable to further downside, with the Fed mulling a move four times as large at the end of this month.
The rest of this week’s data docket is a little quieter, with just the latest ‘flash’ PMIs on Friday of note.
USD
As the EUR has slipped, the greenback has gained, trading at its strongest level in over 2 decades against a basket of peers, and at an all-time high according to Bloomberg’s broader gauge of USD performance.
The move has many catalysts, ranging from the possibility of a 100bps Fed hike after the 9.1% CPI print last Wednesday, the ongoing global growth scare, and broad-based risk aversion, with equities continuing to struggle.
This week, the calendar is quieter, with only second-tier releases due, leaving the USD to be driven largely by shifts in risk appetite as Wall St earnings season continues.
World News
The Bank of England has been under increasing pressure from lawmakers to combat the fastest inflation in four decades. Foreign Secretary Liz Truss announced that if she wins the Conservative Leadership election she may change the central bank’s mandate advising that the usual economic strategy isn’t working.
Politics in Italy is set to take a sour turn, as the coalition keeping Prime Minister Mario Draghi in power could be breaking away and calling for snap elections. Mario Draghi has ruled out remaining as Prime Minister if the coalition does not include the Five Star Movement, with Matteo Salvini and Silvio Berlusconi also ruling out their parties will remain in the governing coalition.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Wednesday 20th July | UK | CPI y/y | 9.10% | 9.30% |
| Thursday 21st July | EU | ECB Interest Rate Decision | 0.00% | 0.25% |
| Friday 22nd July | UK | Manufacturing and Services PMIs | ||
| Friday 22nd July | EU | Manufacturing and Services PMIs | ||
| Friday 22nd July | US | Manufacturing and Services PMIs | ||
Indices
| Share Index | Prev. Close | Open |
| FTSE100 | 7159.01 | 7159.01 |
| DAX | 12864.72 | 12935.05 |
| CAC40 | 6036 | 6070.21 |