Market Report : 19.07.23

Published: 19/07/2023 By ECAP

Sterling opened this morning’s trading session with its biggest single-day drop this month after data showed UK inflation slowed faster than expected in June, giving the Bank of England little room to relax monetary policy. British annual CPI fell to a lower than expected 7.9% in June, below a forecast for a decline to 8.2% and a long way off last October's 41-year high of 11.1%. Futures are now pricing in a 58% chance of a rate hike in August, and the forecast for overall peak in interest rates have subsided towards 6% following the data.

The Euro retraced part of its recent gains as market participants await the final reading of the June eurozone CPI which is due later in the session. The forecasted data should confirm that inflation dropped to 5.5% on the year last month. On that note, the ECB is expected to increase interest rates once more next week, but the single currency has weakened after a known ECB hawk opened the possibility of the central bank pausing its rate-hiking cycle after July.

The Dollar bounced back overnight after the release of U.S. retail sales data for June. Although the headline figure rose less than expected, the May number was revised higher, and core sales showed more resilience, suggesting continued consumer resilience. Nevertheless, the release did not change expectations that the Federal Reserve would resume raising interest rates after this month’s meeting.