The dollar dipped significantly on reservations over the economic outlook.

In testimony to Congress, Fed Chair Powell stated that the central bank is strongly committed to
bringing inflation down and he anticipates on-going rate increases will be appropriate. He added
that inflation had clearly surprised to the upside and further surprises could be in store with the Fed
needing to be nimble.

Powell reiterated that the pace of future rate increases will depend on incoming data and the
evolving economic outlook. When asked whether a 100 basis-point hike was possible he stated that
nothing is off the table, but it was unlikely.

Powell added that financial conditions have tightened significantly, and investment growth appears
to be slowing while the housing sector is softening. He also stated that it is possible that rate rises
could cause a recession.

Philadelphia Fed President Harker stated that we need to get interest rates to 2.50% quickly and
rates should be above 3.00% by year-end. He did, however, add that the bank was starting to see
signs of softening demand and if there is a further slowdown it may be possible to limit the July rate
increase to 50 basis points.

Chicago Fed President Evans stated that a 75 basis-point hike in July would be in line with continued
concerns that inflation is not slowing. He expects rates to be around 3.25-3.50% at the end of 2022
with the Fed hiking in 25 basis-point increments by then.
US longer-term yields moved lower following Powell and Harker’s comments.
Former Japanese official Nakao who was in charge of ordering currency intervention stated that the
current yen weakness is detrimental to Japan’s economy which triggered fresh speculation over
intervention to curb yen losses.

USD/JPY lost ground with lows around 135.20 with lows US yields also sapping dollar support,
although there was solid buying on dips.

Swiss National Bank Chair Jordan stated that inflation is broader than just energy prices and the
inflation data shows the need to tighten monetary policy further, although it was unclear when. In
this context, interest rates may need to increase again.

The headline Canadian inflation rate increased sharply to 7.7% for May from 6.8% previously which
was above expectations of 7.4% and the highest reading since 1983.
The underlying rate increased to 6.1% from 5.7% and also above expectations of 5.9%.

The Norges Bank has stated that it will raise rates at the June policy meeting with an expected 25
basis-point hike to 1.00%, but there has been some speculation that the bank will decide on a faster
pace of hikes given inflation pressures and global tightening.

Euro-Zone consumer confidence dipped to -23.6 for June from -21.2 previously and weaker than
consensus forecasts of -20.5. There were further concerns over German gas supplies from Russia.
The German finance minister warned that the economy was also already in crisis.
US Treasuries gained some ground after Powell’s comments.

The dollar dipped significantly on reservations over the economic outlook as lower yields also
sapped support. EUR/USD strengthened to highs just above 1.06 before fading to 1.0560. Lower US
yields limited further yen selling with intervention talk also triggering dollar selling. USD/JPY dipped
to 135.20 before recovering to 135.70.

The Swiss franc was broadly resilient, USD/CHF retreated to 0.9600 before settling around 0.9620.
Sterling managed to recover from early lows, but rallies continued to attract selling interest.
GBP/USD failed to hold 1.2300 while GBP/EUR dipped to 1.1600.
Commodity currencies recovered from intra-day lows as equities recovered ground, but overall
sentiment remained vulnerable. AUD/USD dipped below 0.6900 on Thursday. USD/CAD
consolidated below 1.2950 on Wednesday before edging higher on Thursday as oil prices retreated
again.

Economic Calendar