USD Falls Further as Fed’s George Floats Idea of Post-July Rates Pause

US Dollar falls as Fed’s George floats idea of post-July rates pause. Equities reverse lower on Beijing lockdown fears. EUR leads in FX amidst hawkish ECB expectations. Gold and silver higher on USD weakness. Oil slips on recession worries and Beijing lockdown fears 

Key Factors for Today

• USD continues lower on dovish Fed comments

• Equities lower amidst Beijing lockdown fears

• EUR higher on Lagarde ECB rate hike signal 

• BOE’s Bailey warns of further hikes

• Oil prices lower on Beijing lockdown concerns 

Coming Up

• EUR eurozone PMIs

• GBP UK PMIs

• USD US PMIs

US Dollar Falls on Fed’s George Comments

The US Dollar continues its bearish run at the European open on Tuesday. The Dollar index fell by a further 1% over Monday’s trading, now sitting roughly 3% off the month’s highs as the correction deepens. The prevailing driver here looks to be comments from Fed’s George yesterday who voiced support for the view that following a further 1% hike in Fed rates over June and July, the Fed will then pause instead of pushing ahead with further rate hikes. While this is in contrast to recent comments from Fed’s Powell it is certainly adding to the current bearishness in USD. 

Equities Hit by Beijing Lockdown Fears

Despite current USD weakness, equities markets are seeing plenty of red so far today. Asian, US, UK and European asset markets are under pressure across late Asian and early European trading on Tuesday. This comes on the back of better gains yesterday as equities traders reacted to a more positive outlook for China following news of the Shanghai lockdowns ending, along with a range of new easing measures from the PBoC. However, risk sentiment is back under pressure today amidst fears that Beijing might be next to enter a fresh lockdown in response to record COVID cases there. 

EUR Rallies on ECB Tightening Signal 

In FX, EUR has been the lead-runner so far today. Comments from ECB’s Lagarde this week, essentially confirming a July rate hike, have fuelled a surge in EUR short-covering which is driving EUR higher here. CHF remains firm today also, extending recent strength as it too benefits from a shift in monetary policy expectations. USD remains on the backfoot with JPY weaker again today also. Data focus today will be on a raft of PMI readings due across the European morning and into the US session with eurozone, UK and US readings all due. 

BOE’s Bailey Warns of Further Rate Hikes

BOE governor Andrew Bailey yesterday warned that the BOE stands ready to hike rates again if necessary in order to tame inflation. With UK CPI seen hitting 40-year highs last week, the market now judges a further rate hike as likely, despite more tempered comments at the last BOE meeting amidst elevated recession concerns. 

Precious Metals Bid but Still Struggling

Gold and silver prices are seeing upside again today. The continued pull back in the US Dollar is helping keep both metals underpinned. However, gains have been somewhat limited given the better returns being seen elsewhere this week such as equities and FX. 

Oil Slips Back on Recession and Beijing Lockdown Fears

Crude oil prices are starting the day weaker on Tuesday. Fears over a potential Beijing lockdown, along with reduced expectations of EU-wide sanctions on Russian oil, are dampening the demand outlook, even while the US Dollar is falling. More broadly, recession fears are also acting as a barrier to higher prices this week, with weakness likely to extend near-term while equities remain under pressure.