July 18, 2022

Daily Report 18/07/2022

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There were no major domestic developments during Friday with the UK currency influenced primarily by global developments. Sterling did find support and secured net gains after the New York open as risk appetite strengthened and the US currency edged lower. Sterling, however, tended to under-perform other majors amid a lack of confidence in the fundamentals. CFTC data recorded a small increase in net Sterling shorts to just over 59,000 contracts from around 56,000 the previous week. Markets continued to monitor the Conservative Party leadership contest with limited Sterling support from expectations of tax cuts, although the overall market impact was limited with global trends having a more substantial impact.

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ECB council member Rehn stated that the central bank is likely to raise interest rates 25 basis points in July with a further 50 basis-point hike in September. CFTC data recorded a net increase in short Euro positions to 25,000 contracts from 17,000 previously which illustrates that there is still scope for further Euro selling.

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Headline US retail sales increased 1.0% for June and above consensus forecasts of 0.8% and followed a revised 0.1% decline the previous month. Underlying sales also increased 1.0% on the month after a revised 0.6% gain previously while the control group registered a 0.8% increase on the month. The dollar advanced slightly after the retail sales data, although the impact was limited as markets considered that the data was not notably stronger than expected. The University of Michigan consumer confidence index edged higher to 51.1 for July from the 40-year low of 50.0 previously and slightly above expectations. There was a stronger bounce in current conditions, but the expectations index edged lower with the weakest reading since 1980. The 1-year inflation expectations index edged lower to 5.2% from 5.3% while the 5-year index dipped to a 9-month low of 2.8% from 3.1%. Given the Fed focus on inflation expectations, fears over a 100 basis-point hike this month faded after the data and risk appetite strengthened. The Fed blackout period is now in force and markets will continue to monitor the media closely given that a Wall Street Journal report just ahead of the previous meeting which warned that the Fed was considering a 75 basis-point rate hike. Following Friday’s data, markets were more confident that the Fed would opt against a 100 basis-point rate hike which limited the scope for further dollar buying.

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