Key Points
US expecting to keep interest rates unchanged at 5.50%.
UK expecting to increase interest rates by 25bps to 5.50%.
ECB increased interest rates by 25bps to 4.50%.
Market Report
GBP
Sterling notched its third weekly loss in four last week, with the pound closing the week beneath the $1.24 handle, and below the 200-day moving average for the first time since March, as the dollar continued to gain broadly across the G10 board
Nevertheless, the pound’s fortunes weren’t helped by a continued dovish repricing of BoE policy expectations, sparked by a stagflationary labour market report which showed unemployment rising for a 3rd straight month in July, while regular pay growth rose to a new record high 8.5% YoY
The BoE’s latest policy decision will be this week’s main event, with a 25bp hike still on the cards, despite the aforementioned repricing; however, such a hike to 5.50% will likely prove to be the last of this cycle, barring a significant upside surprise in the August inflation figures, due on Wednesday, a day before the Old Lady’s announcement
EUR
The common currency also faced stiff headwinds last week, notching a 9th straight weekly decline against the greenback, and dipping beneath the $1.07 handle, as sentiment towards the eurozone continued to sour
Nor was the EUR helped by a relatively dovish 25bp hike from the ECB, who indicated that rates have now reached their terminal level, despite upgrading their short- and medium-run inflation projections; concern over the further hit to growth caused by this surprise hike, however, was the cause of the softer EUR
Looking ahead, this week’s eurozone data calendar brings relatively little of interest, besides Friday’s ‘flash’ PMIs, likely leaving the common currency to be driven by external factors, particularly the direction of the dollar in the aftermath of the FOMC’s latest decision
USD
The dollar remains the ‘pick of the bunch’ in G10 FX, extending its best weekly run since 2014 into a ninth straight week last week, as the market continues to aggressively buy into the theme of US exceptionalism, while also being buoyed by the immaculate disinflation seemingly taking place stateside, with core CPI falling substantially to 4.3% YoY in August, as activity data remains firm
Higher Treasury yields also continue to help the greenback, with yields at the long end of the curve inching ever close to new cycle highs, while money markets continue to price around a one-in-three chance that another Fed hike could be delivered before year-end
Markets will, therefore, pay close attention to the FOMC’s ‘dot plot’ at this week’s meeting, with rates set to remain unchanged, for clarity on whether another hike is likely before year-end, as indicated at the June meeting, though the Committee’s guidance will likely be relatively unchanged, with a data-dependent tightening bias set to be maintained
World News
The cost of renting a home increased by 12% in the year to August, the highest rate since 2014. The typical monthly rent of a newly-let-property is now £1304. Pressure from landlords from high mortgage rates and increased demand from tenants has driven up rental costs. Alongside increased rent costs, activity in the wider market has been slow, with 36% of properties listed for sale have gone through at least one price reduction to encourage buyers.
There will be no final decision on Britain’s new railway HS2 until costs have been revised. When the project was started a budget of £30bn was set aside, now the government have scrapped the scheme between the East Midlands and Leeds due to spiralling costs. HS2 has been symbolic of their levelling up agenda to bridge economic disparities amongst regions, however there are now concerns over the finishing of the project.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Wednesday 20th September | US | Interest Rate Decision | 5.50% | 5.50% |
| Thursday 21st September | UK | Interest Rate Decision | 5.50% | 5.25% |
| Friday 22nd September | EU | Services and Manufacturing PMIs | ||
| Friday 22nd September | UK | Services and Manufacturing PMIs | ||
| Friday 22nd September | US | Services and Manufacturing PMIs | ||
Index
| Share Index | Prev. Close | Open |
| FTSE100 | 7,711.38 | 7,711.38 |
| DAX | 15,893.53 | 15,858.81 |
| CAC40 | 7,378.82 | 7,353.55 |