Sterling was unable to gain support from the UK jobs release with the data overall suggesting that there were signs of the labour market cooling. Sentiment surrounding the UK outlook remained notably pessimistic which continued to undermine currency confidence. The EU continued to criticise the UK draft legislation to remove parts of the Northern Ireland protocol with comments that the move is damaging to mutual trust and breaks international law. Renewed calls by the SNP for a second Scottish independence referendum also undermined confidence.
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The German ZEW investor confidence index improved to -28.0 for June from -34.3 previously, but marginally below consensus forecasts while the current conditions index posted a slightly stronger recovery to -27.6 from -36.5. The Euro-zone confidence index edged higher to -28.0 from -29.5. There was further hawkish rhetoric from ECB officials with council member Knot stating that it was a real possibility that rate hikes will continue in October and December. He added that if conditions remain as they are now, the bank will need to hike more than 25 basis points in September. He added that he would be comfortable with hiking rates to 1.50%. The hawkish rhetoric provided an element of Euro support, especially on the crosses, but there were further concerns over rising peripheral bond yields. ECB council member Schnabel stated that further progress is needed in combatting fragmentation. There was a slight dollar correction ahead of the Fed decision and risk appetite attempted to stabilise while the Euro rallied after the ECB announced an ad-hoc council meeting to discuss current market conditions.
Key Data
17.20 Christine Lagarde Speech
The US NFIB small-business confidence index was little changed at 93.1 for May from 93.2 previously. The proportion of companies expecting better business conditions over the next six months declined to a record low while inflation concerns persisted, although the labour market was still tight. The IBD consumer confidence index retreated to 38.1 for June from 41.2 previously and the lowest reading since 2011. Following reported guidance through the Wall Street Journal, there were still strong expectations that the Federal Reserve would hike rates by 75 basis points at Wednesday’s policy meeting with Powell also expected to deliver a hawkish stance given the need to control inflation. Markets also expect that there will be further upward revisions to interest-rate projections by individual Fed members.
Key Data
13.30 Retail Sales (MoM) (May) Exp. 0.2% Prev. 0.9%
13.30 Retail Sales Control Group (May) Exp. 1.5% Prev. 1%
19.00 Fed Interest rate Decision Exp. 1.5%-1.75% Curr. 1%
19.00 Fed Monetary Policy Statement
19.30 FOMC Press Conference