ACM Update 19-06-23
A lot of central bank activity in the US & Eurozone last week, but sterling was the biggest beneficiary. The pound hit a 14-month high against the Dollar and a 10-month high versus the Euro.
Following a US bank holiday today, the major highlights this week are UK-based with the latest inflation numbers, followed by the Bank of England meeting. Following on from the Chancellor’s comments last week, we can expect to see more rate rises to come from Bailey & Co.
UK news last week saw plenty of data releases, as well as speculation about this week’s looming interest rate announcement. Chancellor Jeremy Hunt admitted that the UK has “no alternative” but to hike interest rates to combat inflation, a pretty solid indication of a number of rate rises still to come. Bank of England interest rates are forecast to now remain higher for longer, potentially up by another 1.25%, which supported sterling against its peers.
On a positive note, GDP bounced back in April following a contraction the previous month, to post 0.2% of growth, in line with expectations. The growth was largely attributed to increased consumer spending in the hospitality sector. Unemployment also saw improvement, dropping to 3.8%. The figures saw the number of people in work exceeding pre-pandemic levels for the first time. Average earnings saw a surprise jump to 6.5%, unlikely to be good news for headline inflation. Meanwhile, the NIESR expects 0.0% growth in the economy for the last three-month period.
Former PM Boris Johnson again finds himself in the headlines for all the wrong reasons. As the fallout from the Partygate investigation continues, he finds himself stepping down as an MP and taking on a “new role” as a Daily Mail columnist. Unwanted headlines for the Conservative party.
As mentioned, a great month thus far for GBP-USD, hitting its highest since April 2022. Recent moves can be seen in the chart below:
Stateside, as widely expected the Federal Reserve held interest rates for the first time since their January 2022 meeting. The lack of a rate rise has been a major factor in recent USD weakness, with concerns it signals the rate hike cycle has come to an end. However, their policymakers still envisage another half a per cent of interest rate hikes this year, which was more hawkish than expected. This was compounded by comments that rates are expected to remain higher for longer.
US consumer inflation meanwhile continues to fall back, with CPI now at 4.0% compared to 7.1% at the turn of the year. Meanwhile, producer inflation is also moving in the right direction, largely thanks to falling energy prices. Retail sales are also in positive territory and performed much better than expected last month, with growth of 0.3%. All in all, a fairly poor week for the Dollar across the board, down almost 3% versus sterling and over 2% versus the Euro.
The main Eurozone news last week came from Frankfurt in the shape of the latest ECB meeting. A further 25 basis point hike was expected and delivered on Thursday, taking the headline rate to 4.0%. Unlike the Fed, Christine Lagarde confirmed that a pause in hikes had not been discussed by the ECB “at all”. Her comments surrounding a July rate hike were fairly direct, describing the prospect as “very likely”.
The Euro had a positive week too as a result. Inflation remains at 6.1% for the bloc according to the latest Flash CPI figures. The German ZEW figures came in better than expected for the first month since February, perhaps demonstrating some positivity for the Eurozone’s largest contributor.
Please see below the recent climb in GBP-EUR:
Elsewhere we saw Australian unemployment fall, as employment hit 14 million workers for the first time, having peaked at 13 million pre-Covid. In a surprise to nobody, the Bank of Japan kept interest rates on hold at -0.1%, where they have been since the start of 2016. And finally, Beyonce caused Swedish inflation to spike to 9.7% in May, such was the demand for her Stockholm concerts in May.
This week:
Monday – US BANK HOLIDAY (Juneteenth), Rightmove UK House Price Index (00:01 UK time)
Tuesday – Australian Monetary Policy Minutes (02:30), Fed member Williams speech (16:45)
Wednesday – UK CPI inflation (07:00), UK House Price Index (09:30), Jerome Powell testifies (15:00)
Thursday – Swiss rate announcement (08:30), Bank of England rate announcement (12:00), US Unemployment Claims (13:30), Jerome Powell testifies (15:00)
Friday – UK Retail Sales (07:00), Manufacturing & Services PMI Data EUR/UK/US (08:15 to 14:45)
Potential for a quiet Monday one might expect, with trading volumes lower due to the Juneteenth bank holiday in the US.
As mentioned, the majority of UK focus will be on Wednesday’s inflation numbers and the Bank of England meeting the day after. Inflation should continue to fall but not as much as the previous month which was a bit of an anomaly due to big jumps the year before. These figures one could argue will be a factor in the Bank of England’s decision on Thursday, but a rate hike to be honest seems like a foregone conclusion.
At the moment we find ourselves in an excellent position for those buying Euros and Dollars (AED/SAR/QAR/HKD). Make sure to get in touch with the team if you are in that situation, to make the most of the current highs.
Have a great week.
