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Fed Rate hikes may pull the economy into a recession, ECB’s plans to boost interest rates dragged the Euro lower


US stock declined on Tuesday amid fears that aggressive rate hikes will drag the economy into a recession ahead of Wednesday’s critical inflation report. Slowing economic growth and soaring inflation continued to weigh on investors’ mood across financial markets, as economists said that inflation kept heating up in June and might force the Federal Reserve to gear for another big rate hike. Meanwhile, the escalating fears about a global recession made market participants fly to the safe-haven greenback for safety and exerted bearish pressure on equity markets. In the Eurozone, macroeconomic data showed that the Economic Sentiment plunged to -53.8 in July, much worse than the previous -28 and missed expectations. The energy crisis in the area, supply chain disruptions, and the ECB’s intentions to hike interest rates both dragged the Euro lower.

The benchmarks, S&P 500 and Dow Jones Industrial Average, dropped on Tuesday as the market is nervous about a global recession and a possible 75 bps rate hike in July by the Fed. The S&P 500 was down 0.9% daily and the Dow Jones Industrial Average declined with a 0.6% loss for the day. All of the eleven sectors stayed in negative territory as the energy and information technology sectors are the worst-performing among all groups, losing 2.03% and 1.34%, respectively. The Nasdaq 100 meanwhile declined the most with a 1.0% loss on Tuesday and the MSCI World index fell 0.8%.

Main Pairs Movement

The US dollar remained steady on Tuesday, losing its upward momentum after touching a daily high of 108.500 level during the Asia session. The DXY index stopped the bullish atmosphere sustained for several days as investors waited for the oncoming US inflation report scheduled on Wednesday.

The GBP/USD bounced from a daily low of 1.1810 level to around 1.1900 on Tuesday as the US dollar became mild during the Asia session. The Bank of England governor said there are alternatives to 25bps rate hikes in the table, adding he expects inflation to fall sharply next year. Meanwhile, EUR/USD also rebounded from a 20-year low 1.0000 level during the Asia session to close at around 1.005 at the end of the day, the fears of a slowdown in economic growth and the aggregation of Fed accentuate the importance of the oncoming inflation report.

Gold declined with a 0.3% loss on Tuesday, although there is a rebound during the Asia session as the US dollar is mild, the gold is still under bearish pressure ahead of the CPI report announced on Wednesday and closed at $1728 at the end of the day. Meanwhile, WTI dropped nearly 8% on Tuesday, oil is falling sharply during the NY session as the concern that China could enter another round of Covid-19 lockdown.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
GBPBoE Gov Bailey Speaks01:00 
NZDRBNZ Interest Rate Decision10:002.50%
NZDRBNZ Rate Statement10:00 
GBPGDP (MoM)14:000.1%
GBPGDP (YoY)14:002.7%
GBPGDP (QoQ)14:000.0%
GBPManufacturing Production (MoM) (May)14:000.1%
GBPMonthly GDP 3M/3M Change14:000.0%
USDCore CPI (MoM) (Jun)20:300.6%
USDCPI (YoY) (Jun)20:308.8%
CADBoC Monetary Policy Report22:00 
CADBoC Interest Rate Decision22:002.25%
USDCrude Oil Inventories22:30-1.933M
CADBOC Press Conference23:00 

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