For Q3, investors and traders worldwide are set to continue obsessing about similar themes that have rocked markets so far in 2022:

• Inflation
• Rate hikes (or the lack thereof) by major central banks
• Recession risks and how it impacts Wall Street earnings

US stock futures have perked up this morning on news that China will cut its quarantine time on foreign travellers. This comes as Wall Street pared gains after initially rising from stronger-than-expected US durable goods data.

Meanwhile, there’s more action in the oil markets as crude extends its recent gains on supply disruptions.

Last week, we cited the possibility of the US dollar falling as recession fears mount.

At the time of writing, the benchmark dollar index (DXY) is set for a weekly decline, ending a run of three consecutive weekly gains. The softer greenback has in turn allowed EURUSD to resurface back above 1.05.

Things are looking gloomy in the world.

The prices of goods and services are skyrocketing at a pace not seen in several decades, making it more expensive to go about our daily lives. 

At the same time, more than 60 central banks around the world have already raised their respective interest rates, and are set to continue doing so for the rest of this year … and beyond.

After the explosive price action last week, gold kicked off Monday on a calmer note.

A softer dollar attracted gold bulls into the vicinity. However, upside gains were capped by hawkish comments from Fed Governor Christopher Waller over the weekend who supported another 75-basis point rate increase at the Fed’s July meeting. This was based around economic data matching his expectations.

Even though the June FOMC meeting is now behind us, markets will continue being laser-focused on the Fed’s quest to tame inflation, a campaign which is feared could end with a recession.

Hence, Fed Chair Jerome Powell’s testimonies before Congress over two days next week will be closely watched for more clues about its incoming rate hikes, and its tolerance for economic pain.

In our Week Ahead article (posted before last Friday's US inflation shocker), the question was asked: ‘Can (the) BOE keep up with hawkish Fed and support GBPUSD?’

Today, we got our answer = yes … or, at least the BOE will try.

Let’s break down the latest policy decision by the Bank of England.
 

King dollar kicked off the new week on a solid note, asserting its dominance against all G10 currencies as investors evaluated last Friday’s red-hot US inflation figures and China’s Covid woes.

GBPUSD has been reflecting the latest policy signals out of the US Federal Reserve and the Bank of England.

These major central banks are set to grab the headlines amidst a busy global economic calendar in the coming week:

Monday, June 13