UK: Weekly FX Market Update 19 June

GBP

• Last week GBPUSD traded higher, to levels not seen since April 2022

• Analysts pointed to average earnings and GDP growth as contributing to this strength.

• This Wednesday we have the release of UK CPI - will it fall from last months 6.8%? What bearing could this data have on Thursdays BoE rate decision? 

• Would stubborn inflation mean that the BoE hikes rates higher and longer than the Federal Reserve and European Central Bank, supporting longer term Sterling strength? Or could Sterling fall as the market takes fright at potential UK stagflation? 

• Bloomberg is giving a 94% chance of a 0.25% rate hike. Does this mean that the event risk is only to the downside with the hike priced in?

EUR

• EURUSD rallied by nearly 2% last week.

• The European Central Bank (ECB) hiked rates by 0.25% as expected with ECB President Lagarde saying a rate hike in July is ‘likely’.

• Bundesbank President Nagel added that the ECB ‘may need to keep hiking rates after the summer break’.

• These hawkish comments are set against a Eurozone economy that is currently in recession, although the ECB now expects GDP growth to be 0.9% this year with the recession short lived.

USD

• The Federal Reserve (Fed) last week paused its interest rate hikes after raising rates persistently for over a year.

• This is in contrast to the Reserve Bank of Australia, Bank of Canada and the ECB, who have all hiked rates this month.

• The US Dollar has weakened across the board as a result of this divergence, with the exception of holding firm against the Japanese Yen.

• Fed Chair Powell testifies on Wednesday and Thursday. Will he outline his hawkish intent to hike rates in July and again later in 2023, as last weeks FOMC meeting outlined? If so, will this create a platform for the dollar to reclaim recent lost ground?

Events for the week ahead:

Mon Jun 19

All Day US Holiday

Tue Jun 20

02:30 AUD Monetary Policy Meeting Minutes

09:00 EUR Current Account

Wed Jun 21

07:00 GBP CPI

13:30 CAD Retail Sales

15:00 USD Fed Chair Powell Testifies

Thu Jun 22

08:30 CHF Swiss National Bank Rate Decision

12:00 GBP Bank of England Interest Rate Decision/Monetary Policy Summary

15:00 USD Fed Chair Powell Testifies

Fri Jun 23

07:00 GBP Retail Sales

09:00 EUR Flash Manufacturing PMI/Flash Services PMI

09:30 GBP Flash Manufacturing PMI/Flash Services PMI

14:45 USD Flash Manufacturing PMI/Flash Services PMI