Overall confidence in the UK outlook remained weak, although forthcoming fiscal support measures could provide an element of relief. There were further reservations over the risks of a trade war with Europe as the government brought the Northern Ireland Protocol Bill to the House of Commons. UK Foreign Secretary Truss stated that the government did not rule out using Article 16 down the line. The legislation passed its second reading and will now go to the committee stage with markets monitoring any retaliation threats by the EU. SNP leader Sturgeon is set to announce further details on Tuesday of the proposed second independence referendum which will tend to unsettle the currency to some extent. The UK currency was also hampered by a slightly less robust risk tone after the New York open, although dollar weakness was a significant element towards the European close.
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The Euro posted gains after Monday’s European and maintained a firm underlying tone, although gains were limited into the US open. Markets were still concerned over the Euro-Zone outlook, especially given reservations over gas supplies and the EU energy commissioner warned that serious disruption to gas supplies is likely. Russian attacks on Ukraine civilian targets were also significant in undermining confidence during the day ahead of Tuesday’s NATO conference. The ECB monetary conference will start in earnest on Tuesday with comments watched closely during the day, especially with global central bank representatives also making comments. Markets are very confident that the ECB will increase interest rates at the July and September meetings and the Euro also gained an element of support from expectations that the deposit rate will move out of negative territory in September.
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9.00 Christine Lagarde Speech
The US Dallas Fed manufacturing index declined sharply to -17.7 for June from -7.3 the previous month. Overall confidence in the US outlook remained more fragile with markets fretting over the recession risks. Concerns over the US outlook were significant in undermining potential dollar support. Markets also moved to lower the expected peak in Federal Reserve interest rates to around 3.5% from 4.0% earlier in the month which sapped support for the US currency.
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