Forex Today: Eyes on Fed’s decision and EU energy crisis

What you need to take care of on  Wednesday, July 27:

 Risk aversion took over financial markets on Tuesday, benefiting the greenback the most. Several factors dented the market’s mood.

Germany reported that Gazprom, the Russian gas giant, is delivering pretty much 20% of its usual natural gas provision. EU countries agreed to reduce gas use for next winter, aiming to cut gas use by 15% in the upcoming six months. Meanwhile, Moscow reported that the missing turbine for the pipeline is on its way after maintenance, but it still has not been installed.

Additionally, speculative interest was paying attention to US bond yields. The yield curve is the most inverted since 2000. 2-year Treasuries are yielding 3.03%, while the 10-year note yields 2.76%. An inverted curve is usually a sign of an upcoming recession.

The International Monetary Fund (IMF) cut the global growth forecast once again this year, from 3.6% in their April review to 2.9%. The organism also warned that downside risks from overheated inflation and the Ukraine war could push the world economy to the edge of a global recession. The World Economic Outlook also showed that in the case Russia complete cut gas to Europe and a drop in the country’s oil export would slow growth further in 2023.

The EUR was again among the weakest USD rivals, with EUR/USD flirting with 1.0100. GBP/USD held above 1.2000, while the AUD/USD settled at 0.6935. The USD/CAD pair advanced amid weaker oil prices, trading near 1.2890.

Save-haven currencies saw little activity, with USD/CHF steady around 0.9620 and USD/JPY now trading at 136.75.

Spot gold remained within familiar level, although near the lower end of its latest range. The bright metal changes hands at $1,717 a troy ounce.

Crude oil prices edged lower, partially due to the dismal mood but also because of a US decision to sell additional 20 million barrels of oil from its Strategic Petroleum Reserve. The barrel of WTI finished the day trading at $94.90 a barrel.

The focus now shifts to the US Federal Reserve. The central bank is widely anticipated to hike the funds rate by 75 bps, although there is a chance of a 100 bps movement. The latter has become increasingly unlikely since the latest Fed meeting, as economic growth keeps deteriorating. Policymakers may not risk a recession to tame inflation.

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