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Central Banks Set The Tone For Markets

By Kevin BeckmanMarket OverviewMay 24, 2022 10:16AM ET
Central Banks Set The Tone For Markets
By Kevin Beckman   |  May 24, 2022 10:16AM ET
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Risk trends are back on the defensive on Tuesday after a short-lived rally witnessed at the start of the week. Still, the safe-haven US dollar stays under pressure, holding around nearly one-month lows as the New York session begins. While risks to economic growth remain in the market focus, investors are also the signals on monetary policy globally.

EUR/USD briefly jumped to a local high of 1.0735 earlier in the day before retreating and was last seen clinging to the 1.0700 mark. The common currency lacks the bullish impetus as the latest hints from the ECB look contradictory. While Holzmann said that a 50 bps rate hike in July would be appropriate, Villeroy noted that a hike by 0.5% isn’t part of the central bank’s consensus. Earlier, Lagarde says that markets should not translate any words by the central bank as any percentage point move.

One should still expect a 25 bps rate hike in July to be the base case. Meanwhile, GBP/USD plummeted from intraday peaks to erase yesterday’s losses after the data showed that the UK manufacturing and service PMI’s came in lower than expected. Weak numbers, in turn, highlight rising recession risks in the country, suggesting the Bank of England could turn more cautious towards tightening in the months ahead even as inflation continues to rise.

Following the disappointing release, the cable fell back from 1.2600 to settle below 1.2500 ahead of the opening bell on Wall Street. Now, investor focus shifts towards the Federal Reserve’s minutes of the last meeting when the Fed raised rates by 50 basis points. The expectations are for two more 50 bps hikes at the next two meetings.

Should the central bank refrain from a more hawkish rhetoric on Wednesday, the greenback could see deeper losses in the days ahead. The fact that the USD index derailed the 102.00 figure for the first time since late-April suggests the near-term technical picture could deteriorate further.

Central Banks Set The Tone For Markets

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Central Banks Set The Tone For Markets

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