UK: Weekly FX Market Update 26 June
Last week’s Inflation data release showed Core CPI still growing, from 6.8% to 7.1% on an annual basis.
The Bank of England (BoE) reacted by hiking interest rates from 4.5% to 5%. The 13th consecutive rate hike.
Money market traders now bet that the BoE will hike rates to 6.25%. (Source Bloomberg).
However, sterling struggled to move higher on this news, with the market trying to decide which narrative to adopt.
Buy sterling as interest rate hikes support it. Or sell sterling as the chances of a recession increase?
With GBPUSD and GBPEUR both lower at the close on Friday than the start of the week, it could be suggested that the recession fear for the UK is now the potential biggest driver of the pound in the short term.
BoE Governor Bailey Speaks on Wednesday, Nationwide HPI is released Thursday and revised GDP is announced on Friday.
EURUSD was quietly gaining as the market focused on the difference between the US Federal Reserve (Fed) pausing interest rates and the European Central Bank (ECB), who continue to hike.
However, will the rally be sustainable bearing in mind there were separate Eurozone and German PMI data which disappointed?
All eyes will turn back to future interest rate hikes when ECB President Lagarde speaks on Monday and Wednesday.
In addition, Eurozone Flash estimate CPI is released on Friday. Last month’s reading was 5.3%, will it prove to be ‘sticky’ supporting further ECB action?
EURUSD has been trading in a tight range of 1.0635 to 1.1095 for two months – which way will it eventually break?
Fed Chair Powell spelt out to Congress last week what he considers going forward, stating that it will be ‘appropriate to raise rates two more times this year’.
Despite this clear instruction, the market (Bloomberg) gives a US interest rate peak level of 5.3%, even though rates now sit at 5.25%. Does this mean that future hikes will strengthen the USD if not currently priced in?
Fed Chair Powell speaks again on Wednesday and Final GDP is out on Thursday. What will month end bring? Will the market listen to Powell and buy USD?
Events for the week ahead:
Mon Jun 26
09:00 EUR German IFO Business Climate
18:30 EUR ECB President Lagarde Speaks
Tue Jun 27
09:15 GBP MPC Dhingra Speaks
13:30 CAD CPI
13:30 USD Durable Goods
15:00 USD Consumer Confidence
Wed Jun 28
Tentative Bank of England Quarterly Bulletin
02:30 AUD CPI
11:30 GBP MPC Pill Speaks
13:30 USD Goods Trade Balance
14:30 EUR ECB President Lagarde/BoE Gov Bailey/Fed Chair Powell Speak
16:00 EUR ECB President Lagarde Speaks
Thu Jun 29
All Day Italian Bank Holiday
07:00 GBP Nationwide House Price Index
09:00 EUR German Preliminary CPI
13:30 USD Final GDP/Unemployment Claims
Fri Jun 30
07:00 GBP Current Account/Final GDP/Revised Business Investment
10:00 EUR CPI Flash Estimate
13:30 CAD GDP
15:00 USD Revised UoM Consumer Sentiment