Treasury Market Commentary –

Analysts think base rates have peaked

A weekly economic update from our Treasury team.

Published

3rd November 2023

Category

Macro Commentary

The Bank of England kept interest rates at their 15-year high of 5.25% and are likely to hold now until the latter half of next year, when rate cuts are expected to start. The vote was split 6-3.

Inflationary pressures, and in particular elevated wage growth, remains a real concern, whilst the growth outlook is extremely weak. The Bank estimates that half of the tightening to date has yet to fully hit the real economy.

The US central bank also kept rates on hold at a 22-year high, with markets believing we are likely at the peak, leading to a more risk-on environment. Treasury yields sold off strongly and equity markets rallied. Today’s focus is very much on the US jobs report due at 1.30pm.

In the Eurozone, economic data has started to improve, but the fundamentals remain poor with a high risk of recession, despite headline inflation falling to a 2 year low of 2.9%. Analysts forecast the central bank to hold interest rates at current levels before being the first to start cutting rates, perhaps as early as March next year.

On the exchanges, we have seen some dollar weakness following the Fed, although conviction levels are low, with GBP/USD remaining volatile within a 1.2000 – 1.2500 range, whilst GBP/EUR remains near its 5-month lows below the pivotal 1.1500 level.

GBP/USD – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

6/11/23

UK New Car Registrations YoY

+21%

n/a

9/11/23

UK RICS House Price Balance

-69%

n/a

10/11/23

UK Manufacturing Prod. YoY

2.8%

n/a

10/11/23

UK Industrial Prod. YoY

1.3%

n/a

10/11/23

UK GDP QoQ

0.2%

n/a

10/11/23

UK GDP YoY

0.6%

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2190

USD/JPY

150.35

GBP/EUR

1.1475

AUD/USD

0.6435

EUR/USD

1.0625

USD/CHF

0.9070

GBP/AED

4.4770

XAU/USD

1987

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7446

-0.07%

S&P

4317

+12.46%

EUROSTOXX

4169

+9.91%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

4.00%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+4.89%

5-year

+4.38%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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