By the end of June, the dollar index had risen by more than 0.5%, despite remarks made by Federal Reserve officials and gloomy economic data. Speaking at a European Central Bank (ECB) annual event, Chairman Jeremy Powell emphasized the significance of preventing a high inflation environment, hinting that it would even lead to the adoption of a restrictive monetary policy. 

Investors are becoming more concerned that the tightening cycle could cause the economy to enter a recession, adding to recent hawkish remarks made by policymakers like Mester, Daly, and Williams. The latest consumer morale indicator dropped to a 16-month low, further denting market sentiment, in the latest sign of mounting concern over rising prices. Final estimates revealed the US economy contracted 1.6 per cent in Q1, more than early forecasts of 1.5%.

During the conference, Powell stated that the Fed is committed to doing everything possible to keep high inflation under control. The biggest risk is if they fail to restore price stability.

He also reaffirmed that the Fed is swiftly raising rates and intends to enter restrictive territory soon. Instead of the anticipated 50bps hike, the Federal Reserve raised the funds rate by 75 basis points to 1.5% to 1.75% during its meeting in June 2022. While this is going on, several Fed officials have been calling for fast increases in interest rates to get inflation back to the desired 2% level. In July, a 75bps or 50bps hike is anticipated.


In late June, the euro was at a consistent $1.05, which is getting closer to the $1.04 5-year low in May. President Christine Lagarde, the European Central Bank’s (ECB) president, also confirmed a 25bps for July. This will take the uncertainty from ECB policymakers that had asked for a steeper increase. 

Investors are paying close attention to what Lagarde and Jerome Powell say. Lagarde is expected to discuss how the ECB will address the eurozone inflation issue at the ECB Forum in Sintra, Portugal. This inflation monster appeared to be ignored by the ECB because they did not raise their interest rates. Because of this, the eurozone’s inflation rate rose above 8%.


Investors have seen a clear weakened USD/JPY currency pair because of the different policies between the two central banks. While the Bank of Japan is loosening their policies to encourage import inflation and domestic growth, the US is tightening their policies.

The yen is staying close to the 24-year low of 136.7 that occurred in June and trading at 136 per dollar. As major central banks are increasing their interest rates, the Bank of Japan is adhering to their low-yield stimulative policy. As speculations circulate among investors that the banks are adjusting their current yield control policy, the central bank has been resisting the pressures placed on the yen and government bonds. 

The greenback is doing well in the foreign exchange market as bulls have taken control of the USD index on anticipations of stable US Personal Consumption Expenditure (PCE). The US PCE is expected to increase by 7% in the first quarter of CY22, in line with the previous report. The US economy is contending with the effects of rising inflation. The Federal Reserve (Fed) has already raised interest rates to 1.5% in response to this. However, the inflation issue has not even seen a slight change. As a result, an unchanged PCE figure will also lower household sentiment in the US.

Jerome Powell will likely dictate a hawkish position for the July monetary policy, considering the US PCE figures show a stable forecast. Fed Powell’s speech will offer insight into Fed’s potential monetary policy action in July. 

Investors are patiently waiting for the release of Japan’s Retail Trade in Tokyo. They may see an improvement in the economic data to 3.3% from the previous annual recorded 2.9%.  


The New Zealand dollar is getting closer to its lowest level in two years, holding below $0.63. Markets are guessing that the Reserve Bank of New Zealand will potentially double its rates to 4.25% by the end of the year. They suggest that there will be various half-point increases in the meetings to come. The RBNZ also raised its cash rate by 50 basis points in May to 2%. These rates are also expected to rise again soon.

As the central bank faced decades-high inflation, it made two 50 bps rate increases, followed by 25 bps increases. New Zealand saw its inflation rate reach 6.9% during the first quarter of this year, which is significantly higher than the central bank’s 1-2% target range.


Jerome Powell strengthened the US dollar by pledging to control inflation while broadening the policy divergence among the BOE and ECB. This impacted the non-interest-bearing Gold Price. The US inflation data will influence the metal’s price action, with the ECB Sintra Forum being out of the way. Any negative influences on gold will stay temporary amid recession fears and the hawkish FED stance. 


According to Reuters, global inflation is reaching multi-decade highs as skyrocketing energy prices, supply chain bottlenecks following the pandemic, and in certain areas, hot labour is driving up the cost of everything and posing a risk of igniting a difficult-to-stop wage-price cycle.

At the ECB’s annual conference in Sintra, Portugal, Powell stated, “The process is highly likely to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent,” 

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