Market Update

Today has a light data calendar with nothing of note in the UK. We have no further UK releases for the rest of this week. However, it should be noted that there are several important releases next week, ahead of the Bank of England policy announcement on 21st June.

These include industrial production and construction output for April and inflation and retail sales data for May.

A couple of Bank of England policymakers are scheduled to speak. One of these is Silvana Tenreyro, who in comments on Monday said she was in favour of modest interest rate hikes in the UK but was vague on timing.

Markets will be watching for any indications that she is in favour of an August hike. The other is Ian McCafferty, one of the two policymakers who voted for an immediate rate rise in May. He is likely to confirm his hawkish stance today. McCafferty will leave the BoE’s Monetary Policy Committee after the August meeting.

Investors are now pricing in a roughly 40 percent chance of the BoE raising borrowing costs in August.

The US trade deficit is likely to have fallen in April. Already released data for trade in goods point to a second consecutive monthly decline. While the level of the deficit remains very high, trade appears to be on course to provide a positive contribution to GDP growth in Q2.

However, analysts warned that risks around the sort of relationship Britain can agree with the EU after Brexit continue to cloud the currency’s outlook.

Brexit concerns and uncertainties still hang over these rate hike expectations and these concerns will develop further as talks continue.

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