CAPITALDIGEST MARKET REVIEW. 13 JUNE 2022.

MONDAY 6/6/2022 – STERLING TRADERS SEE JOHNSON EMERGING WEAKER FROM CONFIDENCE VOTE The pound firmed on news of the confidence vote against British Prime Minister Boris Johnson, betting he will emerge weakened as a leader and less likely to succeed with potentially damaging changes to a key Northern Ireland trade agreement. read more Johnson is widely expected to survive Monday’s vote, called after growing numbers of lawmakers in his Conservative Party questioned his flagging authority over the “partygate” scandal, which led to a series of fines for gatherings in his Downing Street office and residence that broke COVID-19 lockdown rules. A majority of the 359 Conservative lawmakers — at least 180 — would have to vote against Johnson for him to be removed. Bookmaker William Hill gave odds of 2/7 for Johnson to survive, versus 5/2 that he would lose. Broadly, his removal or survival may not change the dismal outlook for the currency and economy, but some saw the vote in itself as a positive. “Sterling has been soggy for a while, and one of the reasons is the twin clouds of uncertainty from the economy and politics,” said Philip Shaw, chief economist at Investec, adding that the vote could help disperse one of the clouds. TUESDAY 7/6/2022 – DOLLAR DIPS AS HOPES RISE THAT INFLATION HAS PEAKED The U.S. dollar index retreated from earlier highs and fell on Tuesday as Wall Street stocks erased initial declines amid growing hopes that inflation may have peaked, but the greenback managed to hit its highest level in 20 years against the Japanese yen. While a decline in Target (TGT.N) dented gains on Wall Street, U.S. stocks mostly advanced as some investors took the retailers profit warning as a sign price pressures on the consumer may start to ease. Longer-dated U.S. Treasury yields, which hit a 3-1/2 week high overnight on concerns the Federal Reserve will continue on its aggressive rate hike path as it seeks to combat inflation, also eased as a tapering off of inflation could slow the central bank’s hiking plans. “The market is pricing in that the Fed is going to do almost all of what it says it is going to do, but that being said you are starting to get this idea that maybe inflation has reached its peak and might be starting to roll over,” said Thomas Martin, senior portfolio manager at Globalt Investments in Atlanta, Georgia. “Retailers are having inventory accumulation problems and you are seeing some prices come down so rates in the U.S. at least have stalled out in this area.” Investors will get a look at the latest inflation reading on Friday in the form of the May consumer price index. WEDNESDAY 8/6/2022 – DOLLAR GAINS AS U.S. STOCKS FALL, ECB DECISION ON TAP The dollar index gained on Wednesday, reversing earlier declines as U.S. equities fell and boosted the appeal of the safe haven, while the euro strengthened ahead of a European Central Bank policy announcement. The greenback reached a fresh two-decade high against the yen, which weakened to hit 134.47 per dollar, its softest since Feb. 27, 2002, and the euro achieved its highest level against the safe-haven yen since Jan. 5, 2015. The Bank of Japan remains one of the few global central banks to maintain a dovish stance while others have adopted tightening policies of hiking interest rates to combat inflation. The European Central Bank (ECB) is expected on Thursday to take a hawkish stance, with interest rate hikes to begin in July as traders price in 75 basis points of hikes by September. read more “The bulls are hoping to see a 50 (basis point hike) and they will probably get a 25,” said Edward Moya, senior market analyst at Oanda in New York. “The expectation is that where global bond yields are and specifically across Europe there is a probably a lot more upside and that is why you are getting some good moves here, eventually the market is really going to fixate on exactly what (ECB president Christine) Lagarde’s message is going to be at that press conference.” Euro hits 7-yr high vs Japanese yen Euro THURSDAY 9/6/2022 – EURO HOLDS NEAR 7-1/2-YEAR HIGH VS YEN BEFORE ECB DECISION TIME The euro held near its highest point in 7-1/2 years versus Japan’s yen on Thursday before a potentially pivotal European Central Bank rate decision, with policymakers expected to announce an end to the bank’s multi-year monetary stimulus. The ECB is all but certain to flag an end to its long-running asset purchase programme at the end of this month, and promise an interest rate hike for July, but the size and pace of its tightening are uncertain. A hawkish Federal Reserve and soaring inflation has upped the pressure on Frankfurt to raise rates, with markets expecting more than 135 bps of cumulative rate hikes by end of the year. “Should the ECB decide to bring forward the timing for tightening policies, then we can expect more substantial gains for the single currency,” said Ricardo Evangelista, a senior analyst at ActivTrades based in London. FRIDAY 10/6/2022 – FOREX-DOLLAR ON FRONT FOOT AS TRADERS AWAIT U.S. INFLATION DATA FOR FED CUES The dollar was at a two-week high on the euro on Friday, ahead of inflation data that should guide the Federal Reserve’s policy tightening path, and after the European Central Bank said it would start its rate-hike campaign next month. U.S. core consumer price growth is expected to cool a fraction, data later in the global day is set to show. Such an outcome would provide some reassurance to those hoping decades-high inflation had peaked in March and that the April pullback was not a one-off. This could give the Fed some wiggle room to raise rates less aggressively later in the year as it tries to rein in inflation without tipping the economy into recession. In the nearer term, markets expect the Fed next week to announce the second of its three consecutive 50-basis-point interest rate hikes, which has boosted the dollar in recent months. The dollar index, which measures the greenback against six peers, was steady at 103.3 after a 0.7% overnight gain.