Treasury Market Commentary –

Markets reduce probability of further rate hikes

A weekly economic update from our Treasury team.

Published

8th September 2023

Category

Macro Commentary

The Bank of England is expected to raise interest rates by 0.25% this month, taking the Bank rate to 5.50%.

However, markets have reduced the probability of a further hike by year end following comments from various Bank officials, leaning towards fewer hikes but keeping rates higher for longer.

With the economy continuing to struggle and facing increasingly challenging headwinds, the Bank acknowledged the real risk of over-tightening and further damaging growth prospects, particularly as past rate rises have yet to fully feed through.

Next week we have some critical data releases, including the key jobs market numbers that remain fundamental to the Bank’s policy decisions.

In the US, strong economic data keeps one more hike on the table before year end, however we expect no change to policy this month. The market is forecasting rate cuts to start in the first half of 2024 as the focus switches from inflation to stimulating growth. The latest inflation report is due next week, with analysts expecting a slight uptick to 3.6%.

In Europe, the economic data continues to disappoint, with markets only pricing a 30% probability of a rate increase at next week’s central bank meeting.

On the exchanges, dollar strength continues to dominate, driven by US economic outperformance and a weakening outlook on China, with GBP/USD dropping to a 3-month low below the 1.2500 level.  GBP/EUR remains very much within the well-established 1.1500 – 1.1750 range.

GBP/USD – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

12/9/23

UK Weekly Earns. Ex Bonus 3M/YoY

7.8%

n/a

12/9/23

UK Average Weekly Earns 3M/YoY

8.2%

n/a

12/9/23

UK Unemployment Rate

4.2%

n/a

13/9/23

UK Manufacturing Prod. YoY

3.1%

n/a

13/9/23

US CPI YoY

3.2%

3.6%

14/9/23

UK RICS House Price Balance

-53%

n/a

14/9/23

EU ECB Deposit Facility Rate

3.75%

3.75%

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2485

USD/JPY

147.25

GBP/EUR

1.1650

AUD/USD

0.6395

EUR/USD

1.0715

USD/CHF

0.8905

GBP/AED

4.5850

XAU/USD

1925

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7441

-0.13%

S&P

4451

+16.40%

EUROSTOXX

4221

+11.27%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

3.75%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.44%

5-year

+4.80%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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