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Italian bonds declined sharply in early Europe on Thursday with expectations that the government would lose a confidence vote as the Five-Star movement withdrew support. A renewed widening of peripheral yield spreads also undermined confidence and the dollar maintained a strong overall tone. The EU Commission held the 2022 GDP growth forecast at 2.7%, but lowered the 2023 estimate to 1.5% from 2.3% previously while inflation forecasts were revised higher.

With risk appetite continuing to deteriorate, the dollar secure further defensive support and the Euro finally dipped below parity just after the New York open. Stop-loss selling kicked in after the break with the Euro retreating to 19-year lows near 0.9950. Prime Minister Draghi tendered his resignation, but there was only limited further reaction. Money markets also priced in 95 basis points of ECB rate hikes by September from 84 points earlier in the week which provided some protection.

Fed Governor Waller stated that he would support a further 75 basis-point rate hike this month, but could lean towards a larger hike if retail sales and housing data comes in materially stronger than expected. He also commented that the central bank does not want to overdo rate hikes and that 75 basis points would take rates to neutral. He added that the market may have over-estimated the chances of a 100 basis-point hike in July and that latest data on inflation expectations will be very important. Although he expressed concerns over inflation data, the rhetoric was slightly less hawkish than expected. St Louis head Bullard also backed a 75 basis-point hike for this month. The dollar rerated after Waller’s comments with the Euro edging back above parity as equities also attempted to recover.

Euro-Zone confidence remained very fragile, but the Euro managed to trade around 1.0020 in early Europe on Friday as the dollar resisted significant selling.


US Treasury Secretary Yellen stated that inflation remains unacceptably high and that bringing down inflation is the Administration’s top priority.

Initial jobless claims increased to 244,000 in the latest week from 235,000 previously while continuing claims declined to 1.33mn from 1.37mn. Initial claims were above consensus forecasts of 235,000 and the highest number for close to five months which suggested a slightly weaker labour market

Producer prices increased 1.1% for June, above expectations of 0.8% with the year-on-year increase increasing to 11.3% from 10.9%. Underlying prices increased 8.2% over the year from 8.5% previously. Markets inevitably continued to fret over the overall inflation outlook after the higher than expected CPI reading on Wednesday.

Treasuries overall lost ground after the US open with the 10-year yield around 2.97% while equities continued to lose ground. The dollar continued its charge with fresh 23-year highs near 139.40 before a correction to 138.80 as 2-year yields declined on the day.

Chinese GDP data was weaker than expected with a second-quarter contraction and 0.4% annual growth compared with expectations of 1.0%. The unemployment and retail sales data, however, was stronger than expected which provided some relief. The dollar settled just below 139.0 in early Europe on Friday.


The latest Bank of England credit conditions survey reported that lender expect the biggest fall in mortgage demand for two years. There were further expectations of a slowdown in the housing sector following the latest RICS survey which registered the lowest proportion of surveyors expecting higher house prices since April 2021.

Bank of England Deputy Governor Ramsden stated that the central bank will not let inflation get out of control and interest rates were very likely to have to go up further to stop a repeat of persistently high inflation that was seen in the 1970s and 1980s. Although domestic yields increased again, global trends dominated during the day.

As the dollar surged again Sterling came under renewed pressure with fresh 2-year lows around 1.1760 against the US currency. There was a recovery above 1.1800 as the dollar retreated while the Euro posted net gains to 0.8475 after hitting resistance close to 0.8500. Political developments had limited impact with markets waiting for the TV performances from the remaining five candidates. Sterling traded around 1.1820 against the dollar on Friday with little change against the Euro.


The Swiss franc was unable to make further headway during Thursday with higher global yields having an impact on curbing support. There were still important reservations over selling the Swiss currency, especially given the more hawkish National Bank policy stance. The Italian political concerns were also significant in providing an element of support for the franc with markets also monitoring global risk conditions.

The Euro settled just above 0.9850 at the European close with the dollar retreating from 0.9885 highs, but with buying on dips and it traded around 0.9840 on Friday.

Technical Levels



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