Treasury Market Commentary –

ECB looking to end negative rates

A weekly economic update from our Treasury team.

Published

10th June 2022

Category

Macro Commentary

The European Central Bank, at yesterday’s policy meeting, confirmed they are aiming for an initial rate increase in July, followed by a potentially larger move in September as they finally move away from negative interest rates. They will also end their QE bond buying program.

Next week we have the UK and US central bank meetings, with both expected to further raise interest rates. The Bank of England is expected to hike by 0.25%, taking Bank rate to 1.25%, with forecasters expecting rates to move as high as 2.50% by year end.

In the US, we expect the Fed to raise by 0.50%, with further aggressive hikes in the coming months, to take their target rate towards 3%.

Inflation continues to be the main economic threat facing markets, as the oil price continues to drive fuel prices higher, and supply issues remain a real problem. Stagflation is a huge challenge facing central banks, whilst recession is a growing risk with the ongoing cost of living squeeze.

The OECD cut its global growth forecasts for next year, most notably for the UK.

The uncertainty continues to drive huge volatility across markets, whilst conviction levels remain low.

On the exchanges, the dollar remains underpinned by the fundamentals of an outperforming economy and aggressive policy tightening. GBP/USD has found a base at 1.2200 but is so far lacking the momentum to test the significant 1.2750 level. GBP/EUR remains within the 1.1600 – 1.1900 range.   

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

13/6/22

UK Industrial Prod. YoY

0.7%

n/a

13/6/22

UK Manufacturing Prod. YoY

1.9%

n/a

14/6/22

UK Average Weekly Earns. 3M/YoY

7.0%

n/a

14/6/22

UK Unemployment Rate

3.7%

n/a

15/6/22

US FOMC Rate Decision (Upper Bound)

1.00%

1.50%

16/6/22

UK Bank of England Bank Rate

1.00%

1.25%

17/6/22

UK Retail Sales YoY

-4.9%

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2490

USD/JPY

133.90

GBP/EUR

1.1745

AUD/USD

0.7125

EUR/USD

1.0640

USD/CHF

0.9775

GBP/AED

4.5900

XAU/USD

1843

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7476

+1.24%

S&P

4017

-15.70%

EUROSTOXX

3724

-13.35%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+2.70%

5-year

+2.60%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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