Economic weakness continues, the market is still difficult to recover

The GBP/USD K-line chart on Tuesday and Wednesday closed with a bottom doji pattern, suggesting that selling may subside. Although the better-than-expected data once caused the pound to rebound on the day, there was still a retreat in the closing stage. In addition to the Fed's interest rate hike expectations that continue to weigh on the exchange rate, the British Labour Party will launch a vote of no confidence in the government. Concerns about political uncertainty in the United Kingdom are also an important factor weighing on the weakening of the pound.

​​

All components of the UK economy contributed to the better-than-expected data: Manufacturing production rose by 2.3% in May, compared with the previous consensus forecast of 0.2%. Industrial output rose 0.9%, matching expectations, and construction output rose 4.8%, beating expectations for a 4.4% rise. The all-important services index, which is important because it represents the largest sector in the UK economy, rose 0.1%, beating expectations for -0.1%. Taking into account the previous revision and the staggering increase in economic activity in May, expectations for GDP growth in the second quarter were raised from -0.7% to +0.3%. Bank of England Deputy Governor Ramsden: Interest rates are likely to have to be raised further. The situation is still very difficult. The Bank of England will not let inflation runaway as it did in the 1970s and 1980s.

​​

With the evolution of the Russian-Ukrainian conflict, the economic development and security strategies of European countries have undergone tremendous changes. In particular, Germany, the largest economy in the euro zone, is in a dilemma with its economy on the left and right, and even the euro is deeply immersed in the mud, and the euro has fallen below 1 against the dollar. parity level. However, in the overnight market, the euro barely closed above parity. Although it rebounded to around 1.01 due to short covering during the session, it still ebbed in the closing phase of the late session.

​​

JPMorgan this week adjusted its euro-dollar forecast based on recent market developments and said the euro will remain under pressure as the European gas crisis is far from over. If Russia halts gas exports to the EU, thereby fully weaponizing gas supplies, the euro could suffer significant losses, as JPMorgan sees a 20% to 25% chance that the euro against the dollar reflects a complete shutdown of Russian gas supplies.

​​

The U.S. dollar index continued to hit a new high of 108.79 since mid-September 2002, as investors bet that the Federal Reserve would further step up its efforts to raise interest rates to combat soaring inflation. US President Biden is about to start a trip to the Middle East, when he will call on Saudi Arabia and other countries to further increase production. But the outside world is skeptical that it will achieve its goal.

​​

The U.S. and Japanese 5-year yield spread has narrowed from its mid-June high, but the move has yet to be reflected in the dollar-yen exchange rate, which has been a key driver of yen weakness factor. “With the U.S. yield curve inverting on worries about a pullback in the economy, a slight narrowing of real yield spreads could be a catalyst for a near-term correction in dollar/yen,” said Jun Kato, chief market analyst at Shinkin Asset Management. "But dollar strength won't change for now"