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Anticipation for rate hikes

Anticipation for rate hikes 

The Pound strengthened last week as news of a potential interest rate hike by the Bank of England in the second half of 2022 circulated. Meanwhile, England is scheduled to be only three weeks away from having all coronavirus restrictions lifted, but the spread of the Indian variant could cause a delay. It’s thought around three-quarters of daily infections are the new highly transmissible Indian variant, but there are hopes that a speedy vaccine rollout can keep things on track. Meanwhile, despite mass disruption to the global economy, the Organisation for Economic Co-operation and Development (OECD) expects global growth to return to levels seen before the pandemic by 2022—much sooner than anticipated. However, the recovery may be patchy, with tourism destinations struggling to achieve these growth levels while travelling is restricted. In the week ahead, Bank of England Governor Andrew Bailey will speak. In terms of data, mortgage, services, and construction stats will be released this week.

Highest inflation stats for two years 

Sterling traded flat against the Euro last week, closing just 0.1% lower. However, despite trading in relatively tight ranges, the Euro index managed to reach 12-week highs. Last week, European Central Bank Chief Christine Lagarde dampened any hopes of tightening monetary policy, despite some positive data showing strength across the bloc. Lagarde said that the ECB still believes inflation will 'return to lower levels' in the future. It's a relatively quiet week for economic data, including German surveys, confidence stats, and French inflation numbers. 

Quickest growth since 1984 forecasted

The Pound to US Dollar exchange rate traded within a 0.9% range last week. Sterling bounced against the Buck on Friday and continues to trade above the $1.42 interbank level today. Last week showed the second estimate of US growth in Q1 came in at 6.4%, slightly below forecasts but above the previous 4.3%. The US is reportedly on track for its quickest pace of growth since 1984, with hints that the Federal Reserve could consider tapering its asset purchases if inflation continues to be high. Consumer prices rose beyond forecasts in April, and future figures will likely be watched by the Federal Reserve when it reviews its monetary policy package. Today, the US will release manufacturing numbers, before labour market stats print towards the close of the week, which can significantly influence USD trading. A number of Federal Reserve representatives will be speaking throughout the week, and the central bank will also release its Beige Book. The Beige Book is a report published eight times a year, consolidating information from the Fed banks to comment on economic conditions.

25 basis point hike expected by September 2022

The Pound slipped against the New Zealand Dollar by around 2.0% in the early part of last week while also tumbling by around 0.9% against the Australian Dollar. The Kiwi Dollar rose as the Reserve Bank of New Zealand (RBNZ) said that it could hike interest rates by 25 basis points in September 2022, but the strength this offered to the local currency didn’t remain for long. Sterling had largely recovered by the end of the week, closing the week around 0.4% lower against the Kiwi and 0.4% higher versus the Aussie. 
Overnight, the Reserve Bank of Australia chose to keep interest rates on hold at 0.1%, in line with expectations. Meanwhile, Markit’s manufacturing data climbed slightly in May, clawing further into expansionary territory, while Building Permits declined significantly in April from the previous 18.9% to -8.6%. Tomorrow, the highly significant GDP Growth Rate number will be published detailing Australia’s expansion in Q1. In the rest of the week, Reserve Bank of Australia representatives will speak, as well as data printing detailing services, Retail Sales, and Home Loans numbers. It’s an incredibly quiet week for New Zealand data, which means the Kiwi will be sensitive to commodity prices and other geopolitical developments. 

OPEC meetings ahead 

The Pound finished the week just 0.3% higher against the commodity-linked Canadian Dollar last week. Oil prices have inched higher today to trade above $70 a barrel ahead of the Organisation for Petroleum Exporting Countries (OPEC) meetings. Today, the Q1 Canadian Growth Rate number will be released, with expectations to fall from 9.6% to 6.7%. Additionally, manufacturing numbers will be out, followed by highly influential labour market data later in the week.