Central banks, dollar banks but sterling doesn’t tank.

In the lead up to the much-anticipated interest rate decisions from the BoE and the Fed currency markets were choppy, even more so with the emergency meeting held by the ECB.

The ECB discussed added measures on Wednesday to address to increased borrowing costs in the bloc’s southern states the prices have soared since the ECB’s announcement of their plan to raise interest rates. The US as expected raised interest rates 75 basis points, whilst the UK kept slow and steady with 25 basis points.

Data is the key for the UK this week, key inflation releases; CPI and retail sales will create unease around the releases.

USD

The dollar gained significant ground against its peers last week, with the Fed’s overly hawkish approach to their rate hiking cycle. Analysts were suggesting a 0.5% increase with further guidance on hiking throughout the remainder of 2022. These expectations were soon ‘knocked up a gear’ when Fed chair Powell suggested a 75-basis point hike in back-to-back meetings. Which could see the US surpass their 1.9% target by the end of the year.

Today (20th Jun) is a US holiday so we are expecting not too much market volatility, subsequently there isn’t much data released for the remainder of the week. Any further discussions supporting the additional 75 basis point increase, could add to the recent dollar strength.

GBP

After a week of falling confidence in the Bank of England’s strategies, the pound has recovered slightly, suggesting that investors outlook may be overshot on the downside, amid all the political uncertainty the UK has been experiencing along with the cost-of-living crisis we are yet to see an answer for.

The UK has now increased their interest rate from 1% to 1.25%, with 3 of the 9 committee members in favour of a 0.5% hike. This more hawkish stance echoed from the aforementioned US Fed’s decision to put their ‘foot on the gas’ in terms of their rate hiking and they sure sparked other central banks to consider doing the same.

This week for key inflation data could be the key driver for sterling. CPI is now expected to increase by 0.1% which is a low increase and could evidence the BoE’s policy is now starting to have the desired effect, which we have been waiting for.

EUR

Last week was a very strong week for the bloc currency, especially against sterling. We saw many support levels erode, despite the pound clawing back some ground towards the backend of the week. The ECB had called an emergency meeting to discuss monetary policy tools, namely; a new bond scheme, to help stabilise prices. This meeting was also inspired by the US Fed’s announcement on Wednesday.

This week we are expecting further guidance from Christine Lagarde after last weeks meeting. We know the euro is already on the front foot after last week, we would expect that all major currency pairs will be battling out throughout the week.

Elsewhere

Today is Juneteenth in the US, the holiday itself is to commemorate the emancipation of enslaved African Americans.

Often the US dollar experiences some strength leading into bank holidays. This past week we haven’t really seen that, as Sam Cooke once said, “I know a change is gonna come”. Keep an eye on dollar movements on Tuesday.

Data

 

Wednesday 22nd June – 06:00

UK Consumer Price Index (YoY) (May) – expected 9.1% from 9%.

Thursday 23rd June – 08:00

EU S&P Global Composite PMI (Jun) – expected 54 versus 54.8.

Thursday 23rd June – 08:30

UK S&P Global/CIPS Services PMI (Jun) – expected 53 versus 53.4.

Written by Josh Hatwell

Josh Hatwell

2022-06-20T08:22:16+00:00 June 20th, 2022|