BoE Rate Hike Expectations Climb Higher
GBP
With the data calendar for the UK being extremely sparse last week, Sterling traded off the back of key data releases coming out of the US and Eurozone.
GBP|EUR traded in a sideways direction for most of the week, bottoming out in the low 1.16’s and peaking at 1.1690, with 1.16 and 1.17 being key resistance levels. For most of the summer range GBP|EUR has been trading around the 1.16 level, most likely because of recession fears from both regions that neither has been able to get ahead.
GBP|USD was volatile last week starting at 1.2580, peaking at 1.2740 in the middle of the week and then dropping back down to 1.2580 by the end of the week. Any Sterling strength was short lived, as positive Non-farm payroll data coupled with a strong increase in the US Dollar Index put selling pressure on the pair.
BoE Chief Economist Huw Pill’s remarks on Thursday around keeping rates higher for longer failed to lift investor sentiment. While the BoE is trying to battle inflation and see rising interest rates as the only way to do it, investors are now worried about the negative effect that it’s having on the rest of the economy.
Looking ahead for the week we have UK PMI figures released tomorrow, if figures come in worse than expected this is going to highlight the negative sentiment of the UK economy and put more pressure on Sterling. We also have the BoE Monetary Policy Report Hearings on Thursday, which will set out the economic analysis and inflation projections that the Monetary Policy Committee uses to make its interest rate decisions. Though it seems all data is pointing towards another rate hike, any gains will most likely be dampened by the weak market sentiment coming out of the UK.
EUR
The Euro was off to a slow start at the beginning of last week due to more weak economic data coming out of Germany. Europe’s top economy being put under pressure highlights that the Eurozone also has its own recession problems.
With German CPI figures coming in slightly higher than consensus investors and speculators increased bets on a further ECB rate hike, providing the Euro with some strength. However this was short lived after core inflation data (CPI) for the Eurozone came out cooler than expected.
Looking at data releases out of the Eurozone this week we have the ECB’s President Christine Lagarde speaking today and tomorrow followed by Eurozone Retail Sales Wednesday and GDP figures Thursday. Investors will be watching closely to determine the overall economic outlook of the Eurozone.
USD
In the wake of last week’s data releases in the US, the Dollar is facing mixed signals in the market. The US economic landscape remains uncertain as investors digest the latest numbers.
On one hand, the labor market is showing resilience, with the Non-farm payrolls report indicating a solid increase in job additions, which has bolstered confidence in the US economy’s recovery. However, on the other hand, concerns are mounting over the persistent high inflation figures, as consumer prices continue to rise.
The combination of robust job growth and persistent inflationary pressures has left investors uncertain about the Federal Reserve’s future monetary policy decisions. The central bank is now navigating a delicate balancing act, as it seeks to support economic growth while addressing inflationary concerns.
Looking ahead for the week we have US PMI figures on Wednesday which are due to come in slightly worse than expected. Any shock falls and we could see the Greenback suffer over the health of the economy.
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