Central bankers' speeches in focus amid concerns over U.S. economy slowdown

Euro slid below 1.05 after the announcement by European Central Bank (ECB) chief Christine Lagarde, where she did not seem eager to offer additional details about what the ECB would be doing in terms of interest rate hikes. The ECB is expected to hike interest rates in July for the first time in a decade to tame soaring inflation.

Christine Lagarde, from the European Central Bank, along with Federal Reserve Chair Jerome Powell and Bank of England Governor Andrew Bailey, will participate in a panel discussion later on Wednesday. Investors will pay a lot of attention to what these central bankers have to say about the trade-off between curbing inflation while still trying to ensure a soft landing for the global economy. 

Investors are still concerned about inflation issues as the Conference Board (C.B.) report showed U.S. consumer confidence falling to a 16-month low in June due to high inflation making consumers worried about a slowing economy. Europe's sentiment is tepid on Wednesday following the overnight declines on Wall Street, with the S&P 500 index down more than 2%.

The recession risk will temporarily undermine the DXY. However, the medium-term uptrend will likely continue for some time yet. For now, the U.S. dollar index is seen to remain in a range of 101 and 105. It's unlikely the DXY will peak until the Fed's front-loaded tightening cycle comes to an end.

China's recovery is gaining momentum

However, there are some hopes for a soft landing. As manufacturing hubs emerged from lockdowns, China's factory activity likely increased for the first time in four months in June as production recovered faster and supply chain snags eased. 

According to the median forecast of 30 economists polled by Reuters, the official manufacturing Purchasing Manager's Index (PMI) is expected to increase to 50.5 in June - the highest in a year - from 49.6 the previous month, returning to expansionary territory for the first time since February. 

Following three months of contraction in factory activity, China may now be moving out of the supply-side shocks caused by COVID-19 lockdowns, which may ease downward pressure on the yuan, which has lost 5% against the U.S. dollar this year.

With COVID curbs easing and a possible boost to upstream production, the key drivers would be accelerated production resumption and boosted infrastructure.

Even though there has been a substantial increase in activity in China since the COVID lockdown in April and May, headwinds still remain. These include a still sluggish property market, weak consumer spending, and worries about outbreaks of infections.

Events of today

US GDP figures in Q1 and crude oil inventories are among the highlights of the economic calendar on Wednesday. US GDP is expected to shrink 1.5% in the first quarter of 2022, and this will be the first contraction since the pandemic began.

Last week's official crude inventory data from the U.S. Energy Information Administration will be released later in Wednesday's session. This is along with the previous week's numbers which were delayed due to a system error.