ACM Update 24-04-23
A pretty poor week for UK data, but not much market volatility off the back of it. Inflation in Britain fell slightly, the ECB gave an insight into their next policy moves, whilst the Fed look likely to be cautious again in their next meeting.
Wednesday morning’s inflation data was the most significant UK release, coming in at 10.1% and nudging sterling to its highs of the week of 1.1374 versus the Euro and 1.2474 versus the Dollar. Another rate hike for the Bank of England in two weeks now seems inevitable. The last month we saw annual inflation under 10% on UK shores was August last year.
UK unemployment also saw worsening figures of 3.8%, with the accompanying claimant count figures rising considerably, far worse than the expected number. Retail sales showed a drop of 0.9%, with the fall largely attributed to the soggy March weather keeping consumers off the high street. With interest rates rising, retailers are definitely feeling the pinch as variable mortgage rates edge higher.
Other UK releases came in the shape of speeches from MPC members Catherine Mann and Silvana Tenreyro. Mann believes the Bank of England are still undecided on their ongoing approach, whilst Tenreyro continued her ongoing rhetoric that the Bank of England may well have already tightened policy too much. Tenreyro is leaving the MPC after the July meeting to be replaced by American economist Megan Greene.
Quite a narrow range for GBP against most majors last week, including against the Euro as per the chart below:
In the Eurozone, the latest ECB minutes were released but again caused little in the way of market movement. The minutes showed a “very large majority” voted for the 50 basis point rate hike in the March meeting.
However, it also seems that there is a growing divide as to whether 25 or 50 basis points is the best way to go in the May meeting. This will likely become data dependent as has been the case recently for most central banks as they try to calculate when to hold or cut rates this year, largely driven by inflation. On which note, Eurozone final inflation numbers came in, as forecast, at 6.9% for the bloc.
Overall a quiet week for US activity and releases. US unemployment claims came in a fraction worse than expectation, showing the US economy is starting to cool a little. The Fed’s Beige Book basket of data was released, with expectations now seemingly moving more towards a 25 basis point hike in the May meeting, followed by one rate cut before the end of the year.
See below for GBP-USD movements last week:
Elsewhere, the Australian monetary policy meeting minutes showed the RBA members strongly considered a further rate hike before opting for a hold in April. The approach was determined as “pause and reassess” for their next meeting, with inflation and consumer demand still running hot. We are likely to see another rate hike in the next meeting as a result.
Canadian inflation meanwhile dropped back to 4.3%, its lowest figure in 19 months. The aggressive action on rate hikes in Canada over the last 18 months is now seemingly bringing inflation back under control. No further interest rate hikes are expected from the Bank of Canada, thus GBP-CAD moved to just shy of its highest figure in 12 months as a result.
Annual inflation also dropped to 6.7% in New Zealand, latest figures showed. One more rate hike to 5.5% is expected in the RBNZ’s next meeting. Sterling versus the New Zealand Dollar moved to its highest since October by close of play of Friday, and just 0.5% off a 14 month high.
The week ahead:
Monday – Rightmove UK House Price Index (00:01 UK time)
Tuesday – Australia & New Zealand Bank Holiday (ANZAC Day), MPC’s Broadbent speech (10:00)
Wednesday – Australian CPI inflation (02:30), Bank of Canada Summary of Deliberations (18:30)
Thursday – US Unemployment Claims (13:30)
Friday – Bank of Japan rate announcement, German CPI inflation, Canadian GDP (13:30)
A brief heads up for all our non-UK clients, don’t forget Monday 1st and Monday 8th of May are both UK bank holidays, so the Aston offices will be closed on both of these days.
Once again a slightly quieter week of releases to come, with most major bank events the following week. Most of the major releases will from much further overseas, with significant events in Australia, Canada and Japan.
The Bank of England Deputy Governor, Ben Broadbent, speaks at an NIESR (National Institute of Social and Economic Research) conference on Tuesday morning. This is unlikely to cause any major movement, barring a declaration of ongoing policy and we are well past April Fool’s Day now. Expect a relatively quiet week for GBP on the data front, so any parliamentary events might be of more significance than usual.
As mentioned, GBP is at very favourable levels currently versus some of the commodity currencies such as the Canadian, Australian and New Zealand Dollars. Any clients with requirements for these pairs should make sure to reach out to the team accordingly, as we race towards the end of April.
The first week of May will deliver interest rate announcements from Australia, the Eurozone and the United States so that promises to provide plenty of movement. Make sure we are aware of any upcoming conversions to protect your exchange rates in advance.
Have a great week.