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The US economy contracted for the second straight quarter in Q2 according to data released on Thursday, falling into what is traditionally classed as a technical recession, though US government officials have attempted to deny it.

This week’s FOMC announcement was largely as expected, though the lack of a firm commitment to additional larger rate increases did send the US dollar lower against its major counterparts on Wednesday.

The Federal Reserve is expected to deliver another sizable interest rate hike at its July policy meeting on Wednesday, although we think that calls for a 100 basis point move are unjustified.

Disappointing economic data out of the US brought yields down worldwide and removed any chance of a 100 basis point interest rate hike from the Federal Reserve this week.

The European Central Bank delivered a larger-than-expected 50 basis point interest rate hike on Thursday afternoon, as policymakers in the bloc grapple to rein in the sharp increase in inflation in the Euro Area.

The US dollar was a touch stronger against its major peers on Wednesday, as markets braced for potential negative headlines on the European energy crisis and the possibility of a downside surprise at this afternoon’s highly anticipated European Central Bank meeting.

Rising bets that the European Central Bank could join the ‘50 club’, and raise rates by half a percentage point at its meeting on Thursday, provided solid support for the euro yesterday, lifting EUR/USD comfortably away from last week’s parity levels.

The peak in US inflation has been getting pushed into the future for some time, and June was no exception.

The euro officially broke through parity levels against the dollar for the first time in almost twenty years on Wednesday afternoon, after another US inflation beat triggered a fresh bout of greenback strength.

Increasing concerns about the fragility of natural gas supplies to Europe, combined with good economic news from the US labor report, means that recession fears are now more sharply focused in Europe.

Boris Johnson’s resignation as UK Prime Minister provided room for a modest rally in the pound on Thursday, with attention in markets quickly turning to who could replace to outgoing Tory leader as the next PM.

The euro made another fresh march towards parity against the US dollar on Wednesday, as talk of recessions in the common bloc and around the world once again weighed on risk appetite.