Fastest rising costs in 40 years

GBP

Prices soar while confidence plummets

The Pound has been trading flat against a basket of other currency majors over the last week. This comes as a downbeat economic growth outlook and rising prices keep consumer confidence subdued and any sustained rally in the British currency limited. Last week, UK inflation hit a fresh 40-year high of 9.1% for May. The Bank of England expects this figure to exceed a hefty 11% later this year, with energy price caps set to be increased again in October. The UK government’s House Price Index for April was also released, surprising markets by showing the average cost of a home in the UK above £280,000 for the first time. That’s an increase of £31,000 from April 2021. The week also closed on a negative note, with UK Consumer Confidence hitting a record low as recession worries continue to weigh on UK households. The second session of G7 meetings was held today in Germany ahead of a range of UK stats being released this week. Economic data due out includes British Retail Consortium Shop Prices, final Q1 GDP growth figures, Mortgage Approvals for May, and Nationwide’s House Price Index. Governor of the Bank of England, Andrew Bailey, is due to speak at the ECB Forum on Central Banking on Wednesday. Markets may experience movement if any comments emerge around the direction or pace of future monetary policy.

EUR

Meetings amid winter warnings

Risk-on sentiment has helped boost the Euro, with the common currency trading 0.80% higher against the US Dollar since the start of trading last week. This is despite Eurostat Consumer Confidence and flash manufacturing and services printing worse-than-expected figures in the Eurozone in recent sessions. EU leaders met to discuss the deteriorating economic outlook following warnings that Europe should prepare for a total shutdown of Russian gas supply this winter. This week, European Central Bank President Christine Lagarde is due to deliver welcoming remarks this evening at the annual ECB Forum on Central Banking, before speaking again tomorrow at the event. She will also participate in a policy-focused panel with BoE Governor Andrew Bailey and US Federal Reserve Chairman Jerome Powell towards the close of the event on Wednesday. Markets will be watching closely for any clues regarding future policy tightening decisions from these three key decision-makers. Meanwhile, Germany will post Gfk Consumer Confidence data for July, followed by fresh inflation and labour figures for June. Friday’s flash inflation rate release for the wider Eurozone will finish the week.

USD

US recession ‘certainly a possibility'

US Dollar strength has waned as markets appear more optimistic heading into month-end. The US Dollar Index is down 0.75% in the last six trading days. Last week, Fed Chairman Jerome Powell acknowledged that recession isn’t the US central bank’s ‘intended outcome at all, but it’s certainly a possibility.’ He said that the United States should be resilient enough to withstand tighter monetary policy but pointed to external events like the Russia-Ukraine war and China’s extended Covid struggle, which can add additional pressures. He communicated that policymakers would take action on a ‘meeting by meeting’ basis. Both Powell and Federal Open Market Committee member Loretta Mester will speak at the ECB Forum for Central Banks in Portugal this week. Back in the US, the economic calendar reflects a busy week of mid to high-tier data releases. The Conference Board (CB) Consumer Confidence index is forecast to drop from May’s 106.4 to print at 100.0 in June. Other headline publications include May’s Core Personal Consumption Expenditures Price Index and the latest Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index.

AUD and NZD

Further hikes ahead

The Sterling to the Australian Dollar exchange rate has been trading around 0.20% stronger today and 0.30% higher over the last week. The Reserve Bank of Australia’s latest monetary policy meeting minutes were released last week alongside additional comments from the central bank’s Governor Philip Lowe, who said interest rates are likely to rise by 0.25% - 0.50% in July. Officials commented that Australians should be prepared for further interest rate hikes as policymakers attempt to encourage inflation back down to within its two to three percent target rate. This week, preliminary Aussie Retail Sales data for May will be released alongside manufacturing figures.

Meanwhile, the Pound to New Zealand Dollar exchange rate has gained 60 basis points since the start of last week, with the pair currently trading at 1.9475, around 5.5% off the year-to-date high. New Zealand learned last week that the nation’s credit card spending had risen 2.2% on the year in May. This followed news that the Westpac Consumer Sentiment dropped sharply to 78.7 in the second quarter of 2022, down from 92.1 in Q1. Later this week, New Zealand’s ANZ Business Confidence for June will print, followed by Building Permits readings for May.

CAD
Fastest rising costs in 40 years

Sterling has fallen 0.70% against the Canadian Dollar in the last week following an uptick in oil prices—Canada’s most lucrative commodity. West Texas Intermediate (WTI) hit a one-month low of $101.53 per barrel on Wednesday before rebounding to the $108 level this morning. Last week, Canadian on-the-year inflation readings came in higher than expected for May. Following a print of 6.8% previously, the overall rate surpassed forecasts of 7.4% to hit 7.7%. The reading marked the fastest pace of acceleration since 1983 and could add to the pressure for more aggressive monetary policy decisions in coming meetings. Expectations are starting to emerge for a 75-basis-point interest rate hike from the Bank of Canada in July. The country’s economic calendar is light this week, with only GDP growth for April and preliminary GDP growth for May released before Canadian markets close on Friday in observance of Canada Day.