The peak in US inflation has been getting pushed into the future for some time, and June was no exception.
The unpleasant surprise sent the dollar soaring generally, but the euro put up a spirited defence of the psychologically important parity level and, after breaching it briefly, managed to end the week above it. Markets are now pricing in some possibility of a nearly unprecedented 100 basis point rate hike at the next Federal Reserve meeting, and in this context it is somewhat reassuring that risk assets like stock markets and emerging market currencies managed to end the week flat to slightly down.
All eyes now are on the ECB meeting on Thursday. With a 25 bp hike baked in and markets pricing a 10% chance of a 50 bp surprise, there will be some room for appreciation if the ECB decides to jolt markets. The Bank of Japan also meets, and it’s expected to remain the odd one out in monetary policy, hanging on to its pre-inflation extreme accomodation. July PMI leading indices across most major economies will round out an extremely busy week.