Market Report : 29.06.23

Published: 28/06/2023 By ECAP

Sterling was unable to make headway and registered a sharp correction during yesterday’s trading session, despite the overall rhetoric behind Governor Andrew Bailey’s conference in Sintra remained broadly hawkish. Bailey stated that the data showed a clear persistence of inflation and that it will be a worse outcome if the bank doesn’t bring inflation down. He also pointed to a very robust labour market with a smaller workforce than was the case before the covid outbreak. Ultimately, UK inflation remained at 8.7% in May, the highest of any major advanced economy, and tomorrow’s first-quarter GDP release is set to show that growth remains hard to find.

The Euro continues to gain ground as ECB President Christine Lagarde said that underlying inflation in the euro zone still remains too high and there wasn’t enough proof to suggest that it has embarked on a downward path. This, in turn, confirms that a July ECB hike is almost a done deal, especially after the latest data from the German state of North Rhine Westphalia, the country’s most populous state, showed consumer prices rising 0.3% on the month in June, an annual rise of 6.2%, above last month’s 5.7%. Looking forward, inflation data from the whole of Germany as well as Spain are due later in the session and could influence the euro’s price action.

The US Dollar traded higher during the overnight trading session, adding to the previous day’s rebound after Fed Chair Jerome Powell reaffirmed that more rate increases were due. This follows suit with other leaders of major central banks that sent hawkish signals from the European Central Bank's annual gathering in Sintra. Powell noted that two more rate rises are likely this year, with an increase at its next policy meeting in late July still a possibility. In addition, Powell also said he does not see inflation coming down to the Fed's 2% target until 2025, adding credence to the concept that interest rates will stay 'higher for longer'. Ultimately, tomorrow’s release of the personal consumption expenditures index, the Fed’s favourite gauge of inflation, and then the jobs report for June, which is due out at the end of next week, will make up two big data points for policymakers to consider at the July meeting.