Market Reports : 08.06.23

Published: 08/06/2023 By ECAP

Sterling continued to muster some strength yesterday, despite thin trading conditions around the currency. Sterling’s strength may have come from renewed Bank of England rate hike bets, as investors continue to price in multiple increases from the British central bank. Investors now anticipate the BoE to raise interest rates again from 4.5% to 4.75% on June 22nd and see a roughly 60% chance that rate will peak at 5.5% later this year. The bets were lifted by the official data released last week, which showed that the headline UK CPI fell less than expected in April and a closely watched measure of core price surged to a 31-year high. Looking forward, UK economic data remains in short supply today and therefore many analysts will be focusing on whether BoE bets could continue to underpin the pound, and for how long.

The Euro retraced part of its lost ground yesterday as ECB officials continue to paint a hawkish picture over future interest rates as they attempt to tame inflation still at elevated levels. Dutch central bank chief Klaas Knot was the latest to point to more tightening, saying on Wednesday that he’s “not yet convinced that the current tightening is sufficient,” adding “inflation could well remain too high for a long time and further rate hikes will then be necessary.” However, economic data of late has pointed to a region still struggling to recover from the difficulties caused by last year’s soaring energy prices.

The US Dollar moved little in overnight trade, with the dollar index and dollar index futures steadying just below 11-week highs. The greenback has fallen into a tight trading range amid uncertainty over a Fed meeting next week. The US central bank is widely expected to pause its year-long interest rate hiking cycle next week, and expectations are growing that this could be a temporary position and another rate increase is still a distinct possibility this year, possibly in July. These increased expectations that US interest rates may have further to rise have come on the back of surprise rate increases by the Bank of Canada and the Reserve Bank of Australia this week, with both central banks bemoaning the sticky nature of their inflation.