GBP

Inflation to hit 11% says BoE

The Pound Index has fallen 0.70% over the last week. Expectations of further interest rate hikes by the Bank of England have kept the currency somewhat supported despite a myriad of negative sentiment for the UK. Last week, the Bank of England raised interest rates by 0.25% while revealing that it expects inflation to peak at 11% by year-end. The vote was split, with some policymakers pushing for a 0.50% increase. The Monetary Policy Committee recognised that rocketing inflation was not only caused by global uncertainty. This week, a number of MPC members will speak throughout the week, and any comments regarding future policy changes could create movement for the Pound. Inflation data for the UK will print on Wednesday, Manufacturing and services stats are set to follow, and Retail Sales figures will round off the week.

EUR

Emergency meeting for the ECB

The Sterling to Euro exchange rate traded over a three-cent range last week echoing moves in GBP/USD as central banks dictated price direction. The pair is down 20 basis points so far today. Last week, the European Central Bank held an emergency meeting to discuss market conditions and, according to the central bank’s statement, tackle ‘vulnerabilities in the Euro area economy which are indeed contributing to the uneven transmission of the normalisation of our monetary policy across jurisdictions’. This ad-hoc meeting—the first since the onset of Covid—came following criticism around the policymakers’ treatment of concerns around fragmentation in the Eurozone. The ECB confirmed that a new tool would be developed to support weaker economies within the EU, but details around this are still to be announced. Looking to this week, the central bank’s Economic Bulletin will be released, detailing the data that was considered when the governing board was making its decision not to hike interest rates earlier this month. Meanwhile, Germany will print its flash manufacturing and services figures for June and see the release of the ifo Business Climate survey.

USD

Largest hike since ‘94

The Pound to US Dollar exchange rate is trading flat following some choppy price action after the Federal Reserve and Bank of England meetings which pushed the pair to a high of $1.2406. In trying to contain rising prices, the Federal Reserve made the largest interest rate hike since 1994 last week, with policymakers raising the rate by 0.75%. Chairman Jerome Powell emphasised that restrictive monetary policy will continue, raising the risk of recession and the unravelling of a strong labour market. The US will observe Juneteenth today, but later this week will see a range of economic data print, including Existing Home Sales, Unemployment Claims, and manufacturing and services figures. The most anticipated events will be Powell testifying before the Senate Banking Committee and the House Financial Services Committee. These speeches will take place on Wednesday and Thursday, respectively. Following the result of the central bank’s interest rate decision last week, markets will be watching closely for any hints regarding the future of monetary policy.

AUD and NZD

New records for Aussie labour data

The Pound to Aussie Dollar exchange rate has fallen 0.60% so far today. Last week’s labour data for Australia saw the country add 60.6K jobs in May, while the Unemployment Rate remained at its low of 3.9%. Despite low jobless rates, wage growth and labour constraints remain concerns for the Aussie economy as the global cost-of-living crisis continues. In the week ahead, Reserve Bank of Australia Officials will speak ahead of the RBA’s meeting minutes release, which will add further colour to its decision to hike the cash rate to 0.85% earlier this month. Initial figures for manufacturing and services in June will also be released later in the week.

The Pound is trading around the 1.93 handle today against the Kiwi Dollar, with the pair down 80 basis points so far this month. Data released in New Zealand last week showed that food prices remained at inflated levels in May, having risen 0.7% from April, and a total of 6.8% compared to May 2021. GDP growth data also hit the market, showing a surprise contraction at -0.2% compared to the expected 0.6% in the first quarter of 2021. The BusinessNZ Manufacturing Index came in at 52.9 in the latter half of the week. Looking ahead to this week, New Zealand will see Westpac Consumer Sentiment data released, alongside Balance of Trade and Credit Card Spending figures. This comes before the country’s Thursday bank holiday closure in observance of Matariki, which marks the beginning of the new year in the Māori lunar calendar.

CAD

Housing stats ahead

The Sterling to Candian Dollar exchange rate is down over 1% this month. Last week, Canada’s Manufacturing Sales in April came in below expectations, rising by 1.7% rather than the 2.1% increase that had been forecasted. Sales of petroleum and coal products noted a record high as the energy disruption caused by the Russia-Ukraine war continues. Canada’s sales figures also benefitted from increased demand for metal, the production of which had been restricted in China due to ongoing Coronavirus measures. Housing Starts beat forecasts, while Wholesale Sales fell 0.5% in April. This week, the Canadian New Housing Price Index—which measures the change in the selling price of new homes—will print for May. Retail Sales data is also due out early in the week, followed by key inflation figures for May.