Market Report : 20.06.23

Published: 20/06/2023 By ECAP

Sterling seems to be consolidating its recent gains and remains near 14-month and 10-month highs against both the Dollar and Euro with traders fully expecting the Bank of England to raise its benchmark interest rate to 4.75% from 4.5% on Thursday, the highest rate since 2008. Looking forward, tomorrow sees the release of the CPI number for May, and this is expected to confirm that inflation in the UK remains the highest in the G7. Ultimately, while there is little doubt that the BOE will increase interest rates on Thursday, there will be lots of views on the size of the hike and the policy guidance for what follows — as standalone, and in combination.

The Euro traded largely flat, remaining close to a one-month peak against the US Dollar and a multi-month low against the Pound as ECB officials spar over the need for more interest rate hikes going forward to continue the battle against inflation. On that note, the ECB raised interest rates by 25-basis points last Thursday, to the highest level in 22 years, and largely pencilled in another increase in borrowing costs in July. However, ECB's chief economist Philip Lane stated that it was too soon to commit to another hike in September. Nevertheless, a number of his colleagues have already expressed the view that underlying inflation remains stubbornly high, and more tightening is needed.
The US Dollar managed to stabilise in overnight trade as the safe haven was in demand during the Asian session. This follows a rate cut by China’s central bank that failed to assuage investor concerns over slowing economic growth. Looking elsewhere, the US Dollar seems to be receiving some support ahead of tomorrow's testimony by Federal Reserve Chair Jerome Powell before Congress. Ultimately, traders are looking at Powell’s testimony for cues on US monetary policy, amid caution over the possibility that he may signal a July rate increase is on the cards.