Treasury Market Commentary –

Markets eye first BoE rate cut in June

A weekly economic update from our Treasury team.

Published

12th January 2024

Category

Macro Commentary

Headline US inflation printed slightly higher than expected at 3.4%, dampening the prospect of an early rate cut by the Fed and pushing yields higher.

The outlook for interest rate differentials remains a key driver of market sentiment as speculation on the timing and scale of rate cuts continues to drive momentum.

The Bank of England is currently priced at 75% probability of cutting rates by 0.25% in June, with markets forecasting a total of 1.25% of cuts this year, which seems a little too aggressive, given the fact that inflation and wage increases remain stubbornly high. The Bank is sticking to the ‘higher for longer’ rhetoric and will likely be very cautious on cutting too early.

The US central bank is expected to be first in embarking on a rate cutting cycle, perhaps as early as March, with up to 1.40% of cuts forecast this year. Inflation dropped significantly throughout 2023, and the focus is switching to supporting the economy and managing a ‘soft landing’.

The European Central Bank may have to be the most aggressive on rate cuts as the economic fundamentals of the bloc remain particularly weak and the growth outlook dire.

Geopolitical tensions remain at the forefront of investors’ minds and the risk of the Middle East conflict spreading remains a real concern.

On the exchanges it has been a cautious start to the year as the unprecedented uncertainty means a lack of any real conviction. Lots of key UK data due next week should lead to increased volatility.

GBP/USD – 1-year chart

Graph GBP/USD Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

15/1/24

UK Rightmove House Prices YoY

-1.1%

n/a

16/1/24

UK Claimant Count

4.0%

n/a

16/1/24

UK Average Weekly Earns. 3M/YoY

7.2%

n/a

17/1/24

UK CPI YoY

3.9%

3.8%

17/1/24

UK RPI YoY

5.3%

n/a

17/1/24

EU CPI YoY

2.9%

2.9%

19/1/24

UK Retail Sales YoY

0.1%

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2685

USD/JPY

144.95

GBP/EUR

1.1615

AUD/USD

0.6695

EUR/USD

1.0920

USD/CHF

0.8515

GBP/AED

4.6590

XAU/USD

2042

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7576

-2.03%

S&P

4780

+0.22%

EUROSTOXX

4442

-1.75%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

4.00%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+4.20%

5-year

+3.61%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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