G20 policymakers will discuss the dollar’s 12% year-to-date rise, which has raised global concern, at their July 15-16 meeting, significantly if it stacks to parity against the euro for the first time in 20 years.
It is noteworthy as it springs up amidst the British political turmoil, Chinese lockdowns, U.S. banks’ results and central bank’s chaos.
Euro, the dollar’s latest prey, is currently at 20-year lows around $1.016 and might reach parity once hit by the dollar’s broad appeal and outpouring gas prices, provoking European recession risks.
There was widespread anticipation that the headline ‘U.S. inflation rising 8.7% year-on-year in June versus May’s 8.6%’ be released yesterday as it could cement bets on a hefty Federal Reserve rate hike and raise the USD higher.
Britain’s scandalous Prime Minister Boris Johnson’s resignation means the world’s fifth-biggest economy is unsettled just as pounds lingers near two-year lows and Britons suffer inflation. However, even though the British parliament drama dominates the news, the market is not contributing to it. This might change when the government takes action to reinstate itself.
If Nadhim Zahawi reviews some tax plans and cuts others as expected, it may support the sterling and promote inflation, which is currently above 11%.
As the Refinitiv I/B/E/S displays overall S&P 500 earnings growing annually at 6% in Q2, financials are expected to drop by 20% earnings. Hence, things get ugly; U.S. banks launch second-quarter earnings because, while higher interest rates are helpful economic growth is also slowing.
Much of that decline stems from worsening outlooks for loan losses, as interest-rate rises increase the risk of borrower defaults. In addition, banks are expected to factor macro-economic views into loss provisions and results.
Wedbush predicts that fee income may falter, citing pressure from mortgages and capital markets revenue.
China is trying to subdue many COVID cases centred on a Shanghai karaoke lounge. However, patients keep springing up, leading to mass testing, and fresh activity curbs have been introduced.
China will release its second-quarter GDP figures today and expected President Xi Jinping’s economic costs to reduce. Although economists stated that the official 5.5% GDP target is unobtainable, President Xi Jinping chooses “temporary” economic costs over endangering lives and upholds the zero-covid policies.
Investors are concerned. Shanghai stocks have paused their five-week winning streak, while growth fears have sent iron ore to its lowest level for the year.
Switzerland raises interest rates by half percent, while the Royal Bank of Canada and the Reserve Bank of New Zealand can barely opt for 25 basis-point moves.
Experts believe RBNZ will deliver another half-point move on July 13 as the rates have increased by 2% five times straight recently, and it also projects to double rates by 4%.
The Bank of Canada is set to make its most significant move since 1998, lifting rates from 75 bps to 2.25%, delivering back-to-back 50 bps hikes.
However, rate hikes may slow down as New Zealand business machoism dwindles and housing markets unwind. On the other hand, Canada is assigned a 35% chance of a recession over the coming year.
The dollar appears to be the only one on the optimal side of the market trajectory.