Treasury Market Commentary –

Matra of ‘higher for longer’ rates weighs on markets

A weekly economic update from our Treasury team.

Published

6th October 2023

Category

Macro Commentary

The market continues to price in the probability of one more interest rate hike from the Bank of England in the coming months, as they balance stubbornly high inflation against the risks of recession.

The data remains very mixed, and the economic outlook incredibly challenging, with the high oil price and weakening sterling fueling inflation, whilst the critically important jobs market remains extremely tight.

Central banks ‘higher for longer’ rates mantra, particularly from the Fed, is weighing heavily on market sentiment, with a further interest rate hike from the US central bank still possible.

The latest US inflation data is released next week and remains a crucial driver of interest rate policy.

In the Eurozone, rates are likely to have now peaked, with rate cuts priced in for the second half of 2024 as the growth outlook remains bleak and a recession is a real possibility.

On the exchanges, dollar strength remains the key driver on interest rate policy, an outperforming economy, and the general risk-off environment, further exacerbated by ongoing weakness in China. GBP/USD trading at new 6-month lows below the 1.2200 level, whilst GBP/EUR dropped to a 2-month low of 1.1500, where we are seeing some initial demand.

Todays focus is very much on the US payrolls data due at 1.30pm.

GBP/EUR – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

11/10/23

US FOMC Meeting Minutes

-

-

12/10/23

UK RICS House Price Balance

-68%

n/a

12/10/23

UK Manufacturing Prod. YoY

3.0%

n/a

12/10/23

UK Industrial Prod. YoY

0.4%

n/a

12/10/23

US CPI YoY

3.7%

3.6%

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2195

USD/JPY

148.90

GBP/EUR

1.1560

AUD/USD

0.6365

EUR/USD

1.0550

USD/CHF

0.9125

GBP/AED

4.4820

XAU/USD

1820

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7453

+0.02%

S&P

4258

+10.90%

EUROSTOXX

4101

+8.10%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

4.00%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.15%

5-year

+4.65%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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