Key Points
ECB raised interest rates by 25bps, whilst maintaining a dovish tone.
US Federal Reserve also raised interest rates by 25bps, moving towards a data-dependant stance.
UK set to follow the ECB and Fed footsteps by raising interest rates by 25bps.
Market Report
GBP
The pound gained for a third week running last week, with cable finally breaking above the 1.26 handle, as the dollar continues to face stiff headwinds as a result of the global monetary policy divergence increasingly working out of the greenback’s favour.
This allowed the pound to benefit, in a week which was rather devoid of major UK releases; nevertheless, from a technical standpoint, with cable having now made a closing break of 1.26, there is little standing in the bulls way until the mid-1.27s.
Looking ahead, Thursday’s Bank of England decision will be this week’s key event, with the MPC set to raise rates by 25bps (the 12th consecutive increase), as inflation remains well above target, and shows little sign of meaningfully falling any time soon.
EUR
The ECB maintained their hawkish tone last week, delivering the 25bps hike those markets had anticipated, while also outlining that further tightening will continue to be delivered into the summer.
This, however, failed to provide significant support to the EUR, which remains trapped between $1.10 and $1.11; it appears that the market is lacking a catalyst to cause this tight range to break, though policy divergence would point to an upside break, all else being equal.
In the week ahead, the eurozone calendar is rather quiet, however market participants will pay close attention to a range of ECB speakers, as traders continue to reprice the policy outlook, and second-guess how much further tightening may be delivered.
USD
The FOMC also met last week, raising rates by 25bps as expected, while also pivoting to a more data-dependent stance, with last week’s increase likely being the last of the tightening cycle; however, rate cuts this year – as markets price – still seem unlikely, particularly after a remarkable labour market report on Friday, which showed over 250k jobs being created, and unemployment hitting new cycle lows, last month.
Amid all of this, the dollar was relatively subdued, dipping just 0.4% on the week against a basket of peers; once more, it appears that a significant amount of last week’s developments were already priced in, again leaving the market without any obvious driving forces.
This week, attention will focus on Monday’s Senior Loan Officer Survey, as markets continue to gauge the degree to which regional banking problems have resulted in tighter credit conditions, in addition to Wednesday’s inflation figures, with price pressures likely to show few signs of further easing.
World News
The average UK house price has fallen by 0.3%, approximately £1000 taking the average to £286,896. This comes after three months of increases and a 0.8% rise in March. Halifax said mortgage raises are now stabilising which provides more certainty to buyers. This week interest rates are expected to rise by 25 basis points to 4.5%, which puts downward pressure on house prices.
The parent company of British airways has raised its forecast for annual operating profits due to stronger bookings, with expected capacity to be at 97% of the 2019 pre-pandemic figures. Revenue for the first 3 months of this year came in at £5.2bn, which is over £2bn more than last years results, meaning IAG has seen a 90% increase. Share prices rose 4% at open following the announcement.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Wednesday 10th May | US | CPI y/y | 5.00% | 5.00% |
| Thursday 11th May | UK | Interest Rate Decision | 4.25% | 4.50% |
| Thursday 11th May | US | PPI m/m | -0.50% | 0.30% |
| Friday 12th May | UK | GDP m/m | 0.00% | 0.00% |
| Friday 12th May | US | Prelim UoM Consumer Sentiment | 63.5 | 63 |
Indices
| Share Index | Prev. Close | Open |
| FTSE100 | 7778.38 | 7778.38 |
| DAX | 15952.83 | 15950.89 |
| CAC40 | 7440.91 |
7415.01 |