Key Points
Today the US celebrate a Bank Holiday.
GBP/USD moves to over 1-year highs.
Bank of England set to raise interest rates by 25bps.
FX Update
GBP
Sterling performed well last week, with cable notching its best weekly advance since last November, and advancing north of the 1.28 handle, buoyed by a dramatic hawkish repricing of the UK rates curve, including the 2-year yield rising to its highest level in 15 years, above those seen in the aftermath of the ‘mini-budget’ last year
Much hotter than expected earnings growth, 7.2% YoY in April, coupled with a surprising decline in unemployment to 3.8%, was the catalyst for the significant move, with markets now seeing a roughly even chance of Bank Rate peaking at 6%
This week, we hear from the BoE, with the MPC set to announce their latest decision on Thursday, and markets expecting a 25bps hike to 4.75%; before this, however, the latest inflation figures are again likely to evidence the ‘stagflationary’ environment in which the UK finds itself, with core CPI set to remain unchanged at a 30-year high 6.8% YoY
EUR
The common currency also enjoyed a strong week, not only benefitting from a hawkish ECB decision, but also receiving a helping hand from the broadly softer USD after the FOMC’s hawkish message appeared to fall largely on deaf ears, though the EUR’s gains ran out just before the $1.10 mark
The ECB hiked rates by 25bps, as expected, while also signalling that another such move is likely to come at the next meeting in July; furthermore, the Governing Council’s hawks appear determined to force through a further hike in September, with rhetoric towards this aim set to continue this week
Looking ahead, while a plethora of ECB speakers are likely to be the market’s main focus, though Friday’s ‘flash’ PMI data will also be worth a look, with the gauges set to show a modest deterioration in both the services and manufacturing sectors
USD
The FOMC surprised with a more hawkish than expected move last week, holding rates steady at 5.00% – 5.25%, but striking an aggressive note when signalling two further 25bps hikes this year, via the 50bp upward revision to the 2023 median dot, while also revising PCE and core PCE inflation forecasts higher, making the June ‘skip’ far from a victory lap
However, markets did not take the Fed’s rhetoric, forecasts, or Chair Powell’s comments at face value, pricing just a 70% chance of a singular further hike, denting the dollar, which slipped 1.25% against a basket of peers, chalking up its third straight weekly loss
All eyes will be back on Fed Chair Powell this week, with his Congressional testimony providing the perfect opportunity to ram home the hawkish message which markets have thus far shrugged off, possibly sparking a rebound for the greenback
World News
The average mortgage rate for a two-year fixed deal has risen to 6.01%, following the last increase in UK interest rates. Moneyfacts figures also showed a drop of 300 available mortgage deals since Friday. However, government intervention to support mortgage payments is seen as risky and could worsen inflation.
America’s top diplomat held “candid, substantive, and constructive” talks with Chinese foreign minister on a rare trip to Beijing. The pair emphasised the importance of open communication and diplomacy between the two countries despite recent tension. Mr Qin has been invited to Washington to continue talks over the coming months.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Wednesday 21st June | UK | CPI y/y | 8.70% | 8.40% |
| Thursday 22nd June | UK | Interest Rate Decision | 4.50% | 4.75% |
| Friday 23rd June | EU | Flash Manufacturing and Services PMIs | ||
| Friday 23rd June | UK | Flash Manufacturing and Services PMIs | ||
| Friday 23rd June | US | Flash Manufacturing and Services PMIs | ||
Indices
| Share Index | Prev. Close | Open |
| FTSE100 | 7642.72 | 7642.72 |
| DAX | 16357.63 | 16272.21 |
| CAC40 | 7388.65 |
7353.31 |