CAPITALDIGEST, MARKET REVIEW. 20 JUNE 2022.

MONDAY 13/6/2022 – STERLING HITS 2-YEAR LOW AS GDP DIPS, POST-BREXIT TENSIONS RISE Sterling fell to its lowest in two years against a rising dollar on Monday, coming under pressure from data showing Britain’s economy unexpectedly shrunk in April and tensions with the European Union over post-Brexit trade with Northern Ireland. UK gross domestic product contracted by 0.3% after inching down by 0.1% in March, the first back-to-back declines since the early days of the coronavirus pandemic in March and April of 2020. Britain’s growth is already expected to be among the weakest for rich countries in 2023, and there is uncertainty over how fast the Bank of England can raise interest rates to tame inflation without further hurting the economy. “April’s soft GDP figures may quell the appetite of some members to vote for a more aggressive 50bp hike”, Investec chief economist Philip Shaw said in a note commenting on the GDP data. Overall, the central bank is broadly expected to raise interest rates for the fifth time since December on Thursday by another quarter percentage point in a bid to restrain inflation, which it forecast will exceed 10% in the final quarter of the year. TUESDAY 14/6/2022 – DOLLAR INDEX JUMPS TO TWO-DECADE HIGH AS TRADERS AWAIT FED RATE MOVE The dollar hit a fresh two-decade high against a basket of currencies on Tuesday, as traders braced for an aggressive rate hike from the U.S. Federal Reserve this week to try to curb inflation. Investors have been unsettled this week by rising expectations that the Fed will raise interest rates by more than forecast, sending the S&P 500 (.SPX) tumbling to confirm a bear market and intensified fears over the economic outlook. There is a nearly 90% expectation for a 75-basis-point increase at the conclusion of a two-day meeting of the U.S. central bank’s Federal Open Market Committee (FOMC) on Wednesday, according to Refinitiv’s Fedwatch Tool. “It’s going to be very difficult for the Fed to out-hawk markets at this point, given the level of expectations going into tomorrow,” said Karl Schamotta, chief market strategist at business payments company Corpay. The U.S. Dollar Currency Index , which tracks its performance against six other major currencies, was up 0.3% at 105.42, after climbing as high as 105.46, its strongest since December 2002. With inflation and growth-related concerns plaguing economies around the world, the greenback has benefited from safe-haven flows in recent weeks and months. “The U.S. dollar remains the best of a bad bunch in FX land,” said Michael Brown, head of market intelligence at payments firm Caxton in London. WEDNESDAY 15/6/2022 – POUND REBOUNDS BUT HEADWINDS BLOW AHEAD OF BOE DECISION Sterling recovered from its lowest level against the dollar since March 2020 on Wednesday, a day ahead of the Bank of England’s rate decision, but the reprieve could prove temporary due to slowing economic growth and growing post-Brexit tensions. Britain’s growth prospects are seen among the weakest for rich countries in 2023, and there is uncertainty over how fast the Bank of England (BoE) – which is expected to raise interest rates again on Thursday – can tighten policy this year to tame inflation without further hurting the economy. All but one of the 56 economists polled by Reuters last week expected the BoE to raise its Bank Rate on Thursday to 1.25% from 1.0%, but many warn a rise to 1.5% could be a close call. The pound, which plunged below $1.20 on Tuesday for the first time since the COVID-19 crash in March 2020, bounced back as much as 1% on Wednesday and was up 0.77% at $1.2089 at 1443 GMT “There is little bit of bargain hunting but I suspect the market is still short on the pound,” said Jane Foley, head of forex strategy at Rabobank, adding the currency’s rebound was likely to be temporary. THURSDAY 16/6/2022 – STERLING SLIDES AHEAD OF BANK OF ENGLAND RATE CALL Sterling slid towards its lowest level this year ahead of an expected Bank of England (BoE) interest rate hike on Thursday as concerns about Britain’s economic prospects weighed. The central bank is expected to raise interest rates by at least 25 basis points, with swaps markets implying chances are higher of an at least 50 basis points increase as the BoE tries to combat soaring inflation. The move follows the U.S. Federal Reserve’s 75 basis point hike on Wednesday, its biggest increase since 1994 as officials try to cut the supply of cheap money in order to combat rising prices in the world’s biggest economy. Britain’s growth prospects are seen among the weakest for rich countries in 2023, and there is uncertainty over how fast the BoE can tighten policy this year to tame inflation without further hurting the economy. Sterling has weakened around 11% against a robust dollar since the start of the year amid the grim outlook for the economy and political instability in Britain. FRIDAY 17/6/2022 – STERLING SLIPS AS DOLLAR STANDS TALL Sterling slipped on Friday against a strengthening U.S. dollar, giving up gains made a day earlier after the Bank of England raised interest rates. The pound fell as much as 0.5% against the dollar to $1.2290 , off from a one-week high of $1.2405 touched a day earlier. It was last at $1.23015. The dollar index, which measures the currency against six peers including the yen, rose 0.23% to 104.12, with the dollar gaining against the Japanese yen after the Bank of Japan kept its ultra-easy monetary policy unchanged. Against the euro, sterling traded flat at 85.46 pence , regaining some ground after losing around 0.3%. “It’s very much a dollar move,” said Michael Hewson, chief market analyst at CMC Markets, of sterling’s performance. The pound had on Thursday gained 1.4% versus the dollar, buoyed by the Bank of England’s 0.25% interest rate rise.