Forex Today: Recession and inflation, the perfect storm

Valeria Bednarik FXStreet

What you need to take care of on Thursday, June 23:

The dollar finished lower on Wednesday against most major rivals, although the slide was limited. Most major pairs remain within familiar levels, with volatility limited.

The main event of the day was US Federal Reserve chief Powell’s testimony before Congress. Powell kick-started his speech, saying that the central bank is strongly committed to bringing inflation back down and that the ongoing interest rate increases will remain appropriate. By the end of the event, he added that they would never take any size of rate hike off the table, regardless higher interest rates are likely to be painful and could cause a recession.

Concerns about inflation and potential recessions remain the same. UK inflation hit 9.1% YoY in May, a 40-year high, while the Canadian Consumer Price Index surged by 7.7%, the highest in 39 years. It is not just about the US, but a global scenario, a result of the pandemic. The risk of a US recession, however, is increasing and the one most worrisome for financial markets.

Meanwhile, persistent tensions in Ukraine exacerbate commodity and food prices. German Chancellor Olaf Scholz diminished the chances of a resolution as he noted that Russian President Vladimir Putin still believes in a dictated peace.

Different US Federal Reserve officials were on the wires but added nothing new to what markets already now. A 75 bps rate hike is on the table for July, while inflation will likely remain high throughout 2023.

The EUR/USD pair advanced for a third consecutive day but remained below the 1.0600 threshold. GBP/USD briefly advanced beyond 1.2300 but ended the day at around 1.2260. Safe-haven CHF appreciated against the greenback, while USD/JPY consolidated and settled at around 136.10.

Commodity-linked currencies posted modest losses against the greenback, recovering from their early slides, as US indexes managed to hold ground, ending the day mixed around their opening levels. Asian and European indexes, on the other hand, closed in the red.

US Treasury yields edged lower amid recession fears, with that on the 10-year note currently at 3.14%.

Gold advanced at the beginning of the day but once again met sellers around the $1,850 area and finished the day at around $1,838 a troy ounce. Crude oil prices remained at the lower end of their weekly range, with WTI settling at $105.50 a barrel.

Like this article? Help us with some feedback by answering this survey:

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

EUR/USD onsolidates around mid-1.1800s as traders keenly await FOMC Minutes

The EUR/USD pair struggles to capitalize on the previous day's goodish rebound from the 1.1800 neighborhood, or a one-and-a-half-week low, and consolidates in a narrow band during the Asian session on Wednesday. Spot prices currently trade just below mid-1.1800s, nearly unchanged for the day.

GBP/USD seems vulnerable near mid-1.3500s; UK CPI/FOMC Minutes awaited

The GBP/USD pair struggles to capitalize on the previous day's late rebound from an over one-week low – levels below the 1.3500 psychological mark – and trades with a negative bias for the third consecutive day on Wednesday. The downside, however, remains cushioned as investors seem reluctant to place aggressive directional bets ahead of the release of the latest UK consumer inflation figures and FOMC Minutes.

Gold regains positive traction after Tuesday's over 2% slump as traders await FOMC Minutes

Gold gains some positive traction during the Asian session on Wednesday and recovers a part of the previous day's heavy losses more than 2%, to the $4,843-4,842 region or a nearly two-week low. The intraday move higher could be attributed to repositioning trade ahead of the release of the FOMC Minutes.

Top Crypto Gainers: Jito drops, Morpho holds steady, Convex Finance climbs

Decentralized Finance tokens, including Jito, Morpho, and Convex Finance, rank among the top-performing crypto assets over the last 24 hours. Jito dips on Wednesday after rallying 22% the previous day on the launch of a new mainnet node.

UK jobs market weakens, bolstering rate cut hopes

In the UK, the latest jobs report made for difficult reading. Nonetheless, this represents yet another reminder for the Bank of England that they need to act swiftly given the collapse in inflation expected over the coming months.

Ripple slides to $1.45 as downside risks surge

Ripple edges lower at the time of writing on Tuesday, from the daily open of $1.48, as headwinds persist across the crypto market. A short-term support is emerging at $1.45, but a buildup of bearish positions could further weaken the derivatives market and prolong the correction.