Recession fears: European currencies plummet

Euro

The combination of a strong dollar and nervousness over gas supplies to Central Europe sent the euro to its lowest point in 20 years. The currency is now valued lower than ever and its positions are even more overstretched this week, but there are fears of halts due to disruption of gas supplies to Central Europe. As a result, the single currency is still a hot potato that everyone is passing on. There is no market-shattering news on the agenda in the Eurozone this week, so trading will be determined by the CPI report from the US.

British Pound

Boris Johnson's resignation got all the attention last week, as there were no important new figures. Strangely enough, after this news, the British pound actually rose against all other European currencies. The dollar's relentless rally almost managed to keep up. The June economic activity PMI indicators were revised upwards, providing a positive context for the pound. This week, attention will return to the economy: we will get the May data on construction, industrial production and the trade balance.

U.S. Dollar

The U.S. labor market report was again strong. This confirms our idea that there is no recession at all. Jobs are still being created, and that is happening much faster than the increase in the labor force. Unemployment remains well below 4% and the number of job seekers is dwarfed by the number of vacancies. That's not what a recession looks like. Markets are pricing in a high probability that the Fed will raise rates by 75 basis points at its July meeting, but this week's inflation report could still throw a spanner in the works. In our view, the key figure is more important than the headline figure. Other reports, such as the PCE, seemed to point to stabilization. A downside surprise could prompt markets to price in another 50 basis points, creating a countertrend in the form of a sell-off from the greenback.