US dollar extends downward correction

Key Movers

The ECB's Christine Lagarde said on Tuesday that she saw the central bank's deposit rate at zero or “slightly above” by the end of September, implying a potential interest rate increase of at least 50 basis points from its current level, and that there could be further raises if policymakers saw inflation stabilizing at 2%. The market is now pricing for a potential 25-basis-point interest rate increase in July, followed by another 25 basis points in September. Analysts are also suggesting that there could be follow-up interest rate increases on October 27 and December 15, which would take the deposit rate to 0.5% by year-end. This news had a positive impact on the euro and it experienced some gains against the US dollar and the pound. EURUSD was up 0.41% trading at 1.07313 at the time of writing.

The pound struggled against the dollar following data that showed a slowdown in business activity, adding to growing concerns that the UK could be headed for a recession later this year. UK manufacturing dropped to 54.6 in May versus an expected 55.1, while the flash services PMI fell to 51.8 in May versus an expected 57.3. GBPUSD was down 0.44% at around 1.2530 at the time of writing.