AUD underperforms as recession fears elevated

Key Movers

Price action across major currencies was mixed on Wednesday as commodity currencies bore the brunt of elevated recession fears while the euro and GBP held up reasonably well despite elevated risk aversion and adverse domestic data sets. The euro, climbed off lows at U$1.0475, eyeing a break above US$1.06, despite reports showing consumer confidence has fallen to its lowest level since the height of the pandemic. Markets instead focused on key comments from Fed Chair Jerome Powell. While Powell offered little in the way of new testimony an acknowledgment a recession was “certainly a possibility” and the suggestion inflation may become entrenched within the economy prompted investors to unwind early USD gains. Fears a US recession will force the Fed off its current path of monetary policy normalisation are weighing increasingly on investors and any sign of sustained and systemic inflation pressures could see recession fears begin to overwhelm inflation concerns. The great British pound opens largely unchanged despite CPI data showing inflation climbed above 9%. The expectation that headline inflation will peak over 11% in Q3 prompted investors to price in a 50 basis point hike at next the next MPC policy meeting in August.