Market Update

Sterling has continued to lose ground against both EUR & USD following on from yesterday’s report showing that The UK’s net debt has now surpassed 100% of GDP levels. Sterling had initially climbed just shy of 0.5% after the release of May’s inflation reading, surprising the markets which had anticipated a slight drop. This has led for calls from The Bank of England to increase interest rates by 50 basis points in order to finally try and get a grip on the occurring problem. It has been suggested that anything less than 50 basis points could cause GBP to lose further ground, as up until now these consecutive hikes of 25 basis points have clearly not worked so far.

Following the inflation release yesterday, markets are seemingly pricing in a further 160 basis points worth of hikes by the end of this year. More importantly, this has moved up from just 140 basis points being priced in yesterday. In terms of today’s Interest Rate decision by The Bank of England, a 25 basis point hike currently sits at a 60% probability, however over the past 24 hours it now seems to be a 50%-50% balance in terms of whether the Bank of England go for a 25 bps or 50 bps hike.

The risks for today’s decision from The Bank of England is that GBP is still currently the best performing G10 currency in 2023, mainly because investors believe that The Bank of England is set to be the most hawkish. This puts massive pressure on the central bank to raise by 50 basis points and point towards further hikes in the coming months, as anything less than that could be detrimental to GBP’s performance against the major currencies.

Sticking with The UK, we finish the week of with Retail Sales for May which look to have improved slightly, albeit still in negative figures. However, this could be mainly down to the number of Bank Holidays in May which would have encouraged the public to go out and spend in restaurants etc…

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