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Market Update

• Posted by currencies in Bank of England, Currency, Dollar, Economy, EUR, Fed, GBP, Inflation, Rate Cuts, Sterling, UK, Uncategorised
• May 30, 2023
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The last week was pretty volatile for markets- with traders now pricing in more BoE hikes this year (Expected to reach 5.5%) following inflation data showing no sign of cooling yet. Naturally, this helped push the GBPEUR rate higher into the 1.15 area- but unfortunately, this did not reflect in GBPUSD prices, much due to the volatility surrounding the Debt ceiling talks. It seems the recent UK inflation figure caught markets off guard and there has been a major re-pricing on rates for this year- the reality is that it is difficult to predict what the BoE will do, mainly because they are facing difficult decisions right now, if they hike, they will hurt the economy, if they don’t, then inflation may not come down fast enough. There has been reductions in food pricing (Yet to be passed down to consumers) and we are expecting a fall in energy prices, much of this will creep into CPI numbers later this year, but for now, a June hike is definitely on the table and then we will have to watch the numbers.

This week is relatively quiet on the data front- however there are a few key releases that I suggest watching out for, the first, being German unemployment on Wednesday- following news of Germany hitting recession officially last week, it will be interesting to see how the employment situation develops, a higher number than 5.6% (Currently what is forecasted)- will see GBPEUR going higher.

On Thursday, we have Europe core inflation- which is expected to come in at a lower figure than last month at 5.5%- if we do see this lower figure then this could imply that the ECB is less likely to be aggressive moving forward with rate hikes, which could also help the GBPEUR price. However, if we for whatever reason see a higher reading- then unfortunately this is bad news for Euro buyers as it would indicate that the ECB still has work to do and will be raising rates moving forward.

Laslty, we have Non-Farm Payrolls and unemployment out of the U.S on Friday- the last release showed a robust jobs situation in the U.S- and this month the expectation is a lower figure, with unemployment creeping up to 3.5%- if we do, in fact see this, then GBPUSD may move higher as a result of this.