Treasury Market Commentary –

Key borrowing rates remain close to 15-year highs

A weekly economic update from our Treasury team.

Published

1st September 2023

Category

Macro Commentary

The UK housing market continues to weaken as higher mortgage costs weigh on demand, with mortgage approvals dropping almost 10% in a month, as key borrowing rates remain close to 15-year highs. Crucially, the full impact of rate rises is yet to come through and will remain a headwind to house prices.

The Bank of England is fully priced to raise rates by a further 0.25% in September, taking rates to 5.50%, with most analysts forecasting a final 0.25% hike later this year, dependant on the data, particularly inflation. Although yesterday, the BoE Chief Economist, Huw Pill, indicated that keeping rates at the current level for longer may be preferable than moving higher.

Weaker US economic data increases the likelihood of the Fed holding rates for the remainder of this year, with rate cuts expected in the first half of 2024 as the focus turns to stimulating growth.

In Europe, slightly higher than expected inflation has increased the probability of one final rate hike this month, although the decision will be finely balanced against a weakening economic outlook.

Elsewhere, the economic slowdown in China continues to be a real drag on global growth, and despite the authorities adding further stimulus, sentiment remains negative.

On the exchanges, holiday trading conditions means lower liquidity and a lack of conviction, with GBP/USD remaining volatile within the 1.2500 – 1.3000 range, and GBP/EUR within the well-established 1.1500 – 1.1750.

Today’s focus is very much on the US payrolls data due at 1.30pm.

GBP/USD – 1-year chart

Graph GBP Currency Last Price

Week Ahead

Date

Release

Last

Expected*

5/9/23

UK New Car Registrations YoY

28.3%

n/a

5/9/23

UK S&P/CIPS Services PMI

48.7

n/a

5/9/23

UK S&P/CIPS Composite PMI

47.9

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2650

USD/JPY

145.60

GBP/EUR

1.1665

AUD/USD

0.6455

EUR/USD

1.0845

USD/CHF

0.8825

GBP/AED

4.6433

XAU/USD

1939

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7447

-0.05%

S&P

4507

+17.87%

EUROSTOXX

4306

+13.52%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

3.75%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.51%

5-year

+4.79%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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