Tumbling, rumbling and the ECB finally Succumbing

The currency market was quite volatile last week and for what seem like the first time in forever was almost entirely due to economic news. Boris Johnson faced his vote of no confidence which he won without dispute, yet he did not come out of it unscathed.

This week, again, economic data is the focus, and even more volatility is expected.

USD

At the start of last week, the US traded relatively flat and generally in a 1% range versus its major peers, but that was before any significant data come due.

Initial jobless claims came through slightly worse than expected yet a key reason for this could be as generic as “seasonal”, we are heading into the “farming” months in the US so the uptick in claims could be associated with contracted workers contracts ending and claiming for a month or so before they start farming. Separately CPI on Friday whilst still rising the pace has notably slowed which begs the question, is the Feds aggressive rate hiking cycle working?

Wednesday is the big one for the states. Retail sales are expected to improve; the Fed are expected to raise interest rates 50 basis points to 1.5%. Markets will be super keen to hear any dialogue that suggest the Fed are still on target to surpass the 2% mark come the end of the year.

GBP

Over the last couple of year Boris Johnson has acted as though he is on a hypothetical cakewalk, acting like the smoothest of criminals whilst residing in number 10. Has he now started to moonwalk the conservative party back to the end of the Theresa May era?

The in-fighting in the party is rife, the steadfast loyalists will no-doubt be jostling for the top jobs in the cabinet whilst the defectors will need to make a choice of “get onboard” or “go overboard”. Luckily the pound remained relatively unaffected and was rangebound for the most of last week.

This morning GDP figures for the UK have been released and they were even lower than expected, the pound has already started to weaken.

The unemployment rate in the UK is expected to increase to 3.8% tomorrow, whilst the very small increase will likely be overlooked since that piece of data has been resolute through Brexit and covid, it could be a sign of the slowing economy and coupled with the negative GDP figures could signal a trend that pushes the UK into a recession.

The BoE interest rate decision is due on Thursday, and it could be the most significant we have seen this year. Generally, the market is expecting a 25-basis point hike, however there is a real possibility of no hike, 25 basis-point or even 50 basis-points.

EUR

GDP in Europe last week surprised markets at 5.4% and the significance of the figure is that it is pretty much all on schedule with the upcoming rate hike and ending of bond purchasing. The ECB opted to keep rates unchanged as expected but, Madame Lagarde confirmed that the bond purchasing will end in July, which paves the way for the interest rate increase before the end of Q3.

Industrial production is due to decrease on Wednesday to -1.1%, the small decrease shouldn’t cause any ruptures in the market. It will be worth keeping an ear out though on any comments that might suggest any hike coming sooner.

Elsewhere

Global freight charges have increased during covid, how has that affected your business?

Recent financial statements have shown that freight companies revenues are increasing, the lack of supply will be the main factor for the rising charges (at least initially) but now, other than some covid issues in China the world is operating as close to normal as possible. So is it fuel, supply or freight companies being greedy? Please get in touch with your account manager to discuss strategies that will hopefully alleviate the increasing price pressures.

Data

Tuesday 14th June – 06:00 AM

GBP – Unemployment rate- expected 3.8% from 3.7%

Wednesday 15th June – 12:30 PM

USD – Retail sales expected 0.2% from 0.9%

USD – Interest rate decision expected 1.5% from 1.00%

Thursday 16th June – 11:00 PM

GBP – Interest rate decision expected 1.25% from 1.00%

Written by Bobby Morgan

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2022-06-13T07:55:47+00:00 June 13th, 2022|