Forex Today: Recession and inflation, the perfect storm

What you need to take care of on Thursday, June 23:

The dollar finished Wednesday against most major rivals, although the slide was limited. Most major pairs remain within familiar levels, with volatility limited.

The main event of the day was US Federal Reserve chief Powell’s testimony before Congress. Powell kick-started his speech, saying that the central bank is strongly committed to bringing inflation back down and that the ongoing interest rate increases will remain appropriate. By the end of the event, he added that they would never take any size of rate hike off the table, regardless higher interest rates are likely to be painful and could cause a recession.

Concerns about inflation and potential recessions remain the same. UK inflation hit 9.1% YoY in May, a 40-year high, while the Canadian Consumer Price Index surged by 7.7%, the highest in 39 years. It is not just about the US, but a global scenario, a result of the pandemic. The risk of a US recession, however, is increasing and the one most worrisome for financial markets.  

Meanwhile, persistent tensions in Ukraine exacerbate commodity and food prices. German Chancellor Olaf Scholz diminished the chances of a pacific solution as he noted that Russian President Vladimir Putin still believes in a dictated peace.

Different US Federal Reserve officials were on the wires but added nothing new to what markets already now. A 75 bps rate hike is on the table for July, while inflation will likely remain high throughout 2023.

The EUR/USD pair advanced for a third consecutive day but remained below the 1.0600 threshold. GBP/USD briefly advanced beyond 1.2300 but ended the day at around 1.2260. Safe-haven CHF appreciated against the greenback, while USD/JPY consolidated and settled at around 136.10.

Commodity-linked currencies posted modest losses against the greenback, recovering from their early slides, as US indexes managed to hold ground, ending the day mixed around their opening levels. Asian and European indexes, on the other hand, closed in the red.

US Treasury yields edged lower amid recession fears, with that on the 10-year note currently at 3.14%.

Gold advanced at the beginning of the day but once again met sellers around the $1,850 rea and finished the day at around $1,838 a troy ounce. Crude oil prices remained at the lower end of their weekly range, with WTI settling at $105.50 a barrel.