What to watch for on Wednesday, July 27:
Risk aversion gripped financial markets on Tuesday, further benefiting the dollar. Several factors dented the market sentiment.
Germany reported that Gazprom, the Russian gas giant, is delivering almost 20% of its usual supply of natural gas. EU countries have agreed to reduce gas use for the coming winter, with the aim of reducing gas use by 15% in the next six months. Meanwhile, Moscow reported that the missing turbine for the pipeline is on its way after maintenance, but has not yet been installed.
In addition, speculative interest was attentive to US bond yields. The yield curve is the most inverted since 2000. 2-year Treasuries are yielding 3.03%, while the 10-year yield is trading at 2.76%. An inverted curve is usually a sign of an upcoming recession.
The International Monetary Fund (IMF) once again cut global growth forecasts for this year, from 3.6% in its April revision to 2.9%. The body also warned that the risks of overheating from inflation and the war in Ukraine could push the world economy to the brink of a global recession. The World Economic Prospects also showed that in the event Russia completely cut off gas to Europe and a drop in the country’s oil export would further dampen growth in 2023.
The euro was once again one of the dollar’s weakest rivals, with EUR/USD flirting with 1.0100. GBP/USD remained above 1.2000, while AUD/USD settled at 0.6935. The USD/CAD pair advanced amid weakness in oil prices, trading near 1.2890.
Haven currencies saw little activity, with USD/CHF stable around 0.9620 and USD/JPY trading at 136.75.
Gold remained at a familiar level, albeit near the lower end of its latest range. The shiny metal is trading at $1,717 a troy ounce.
Crude prices fell, partly because of the bad environment, but also because of the US decision to sell an additional 20 million barrels from its Strategic Petroleum Reserve. The barrel of WTI ended the day trading at $94.90 a barrel.
The focus of attention now shifts to the US Federal Reserve. The central bank is expected to raise the funds rate by 75 basis points, although there is a possibility of a 100 basis point move. The latter is increasingly unlikely since the last Fed meeting, as economic growth continues to deteriorate. Policymakers may not risk a recession to control inflation.
Source: Fx Street
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