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Foreign Exchange Analysis ~ 19 June 2023


GB Pound

What happened last week?

Sterling has remained strong in the early days of June as rate expectations in the UK remained high.


What to watch for in the short-term?

This week’s Bank of England meeting is set to see rates rise once again on Threadneedle St with data on both prices and growth not allowing the Bank of England to pull away from the table anytime soon.


Currently – including the 25bps priced in for this Thursday – there are 125bps of hikes that the market expects by December. Given the ongoing news agenda around a ‘mortgage timebomb’ in the UK, we expect communications from the BOE to ratchet up in regards to prudential borrowing and the effect that higher rates will have on marginal spending and disposable income.


What about the coming months? With the debt ceiling no longer a near-term issue and the dollar no longer needed as a haven currency from a market dislocation, there is the real chance of a move towards 1.30 in GBPUSD terms.


Calendar

Wednesday 07.00 BST | UK Inflation

Thursday 12.00 BST | BoE Interest Rate Decision


US Dollar

What happened last week? The USD remains bid as central bank watchers argue that the US should continue to hike into the strength of other central banks. What to watch for in the short-term? In isolation, the US dollar does look primed to outperform. Currencies don’t exist in isolation however, and as much as we can talk about inherent strength, the relative merits of US outperformance can and could continue to be outweighed by conditions elsewhere. You only have to look at the near-term weakness in USDJPY to see that this is the case and we expect EURUSD and GBPUSD to trade against the greenback again in the coming weeks. What about the coming months? We may have to wait until August or September for the narrative on rates to shift in the US but data from the United States will be the driver above anything else. Calendar Friday 14.45 BST | US PMIs


Euro

What happened last week?

EURUSD had a strong week but has failed to hold on to gains following the ECB rate hike.


What to watch for in the short-term?

With rate rises expected from central banks in the UK, Norway and Switzerland this week, conditions for the single currency remain positive.


July’s rate hike in Europe is fully priced in and further will become increasingly concrete as the core CPI – something that the ECB noted as ‘too high for too long’ on Thursday – remains over 2%. The focus for data watchers will be the PMIs on Friday with investors looking for clues on future sentiment.


What about the coming months? We still expect that the euro will outperform the USD through the 2nd half of the year although further hopes of stimulus in other parts of the world i.e., China will make this prediction a little more sure.


Calendar

Friday 09.00 BST | European PMIs




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