Yesterday ECB was out holding their interest rate decision. To no ones surprise they led the way and stay on par with expectations raising interest rates levels by 25 basis points to 2.5%, which markets had priced in. In the press conference after President Christine Lagarde, did raise a warning regarding inflation levels. Expectations in Europe is that inflation will reach 3% by the end of the year. To tackle this situation, ECB did sound more hawkish moving forward and its likely that we can see further rate hikes in the calendar year. It comes inline with the recent development in the Middle East. Fears of the conflict escalating has effected oil price levels once again. Brent crude oil reached $106 per barrel in this morning session, its highest level since back in May this year. Continental European gas prices also increased, a leading indicator was the Dutch wholesale gas price, seen as the EU standard passing 80EUR per megawatt hour. This is happened for the first time since January 2023.
Even British gas prices rose over the session, reaching its highest levels since back in December 2022. Other than being a inflationary pressure, this has raised government borrowing costs across leading economies. UK government bonds hit 5.36%, levels last seen back in 2007. Creating an issue for the UK government ahead of their budget planning. Some relief for the UK government came in the Friday morning session after GDP figures boosted better than expected result for July. Up by 0.4%, with market experts believing it would flatline. The lift came from the good weather and the World Cup noticing specific in sales for alcohol goods, pubs and bars. Which could slightly ease pressure on the Chancellor after the cost of government borrowing costs rose to levels not seen in decades after a jump in the price of oil reignited a bond market sell-off.
Today’s afternoon focus will shift to the US and potentially a leading indicator for the Federal Reserve will be the announcement of consumer price index, CPI, today. With PPI figures yesterday rose from 0.1% to 0.4%, on par with forecast there wouldn’t be a surprise if we see producers to forward the price burden on to the consumer.
This can fuel further speculations and fears from central banks of handling inflation pressures in the upcoming months and next week. Both Bank of England and the Federal Reserve hold their interest rate decisions next week and with ECB setting the tone, can we see the two heavy hitters follow suit?
GBP/EUR 1.1628 GBP/USD 1.3500 GBP/AED 4.9606
GBP/AUD 1.8836 GBP/CHF 1.0984 GBP/CAD 1.8694
GBP/NZD 2.3182 EUR/USD 1.1594 GBP/ZAR 21.8149