Treasury Market Commentary –

BoE holds firm on rates as the US signals cuts

A weekly economic update from our Treasury team.

Published

15th December 2023

Category

Macro Commentary

The Bank of England kept interest rates at their 15-year high of 5.25% as widely expected, with a 6-3 split decision. The central bank stuck to its ‘higher for longer’ mantra which has been underpinning sterling strength, despite the market pricing in over 75bps of rate cuts in the coming year.

The Bank faces the unprecedented challenges of balancing an exceptionally weak growth outlook against inflation and average earnings that, despite the recent drop, remain too high. The UK market is particularly sensitive to interest rates and the full effect of rate hikes has yet to fully feed through.

The US central bank also kept policy on hold, and indicated rate cuts next year may be more aggressive than previously expected, underpinning US equities and leading to a further drop in yields.

The European Central Bank also held rates, with markets forecasting an aggressive rate cutting cycle to start as early as March as the underlying economic fundamentals remain incredibly weak.

The coming year is expected to be extremely challenging, with increasing geopolitical risks, volatile oil prices, stubborn inflation, and poor growth, as well as UK and US elections.

Liquidity will start to dry up as we approach year-end which may lead to exaggerated market moves.

This report will return on the 12th of January.

We wish all our clients a very Merry Christmas and a happy and prosperous New Year!

GBP/USD – 1-year chart

Graph GBP/USD Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

19/12/23

EU CPI YoY

2.4%

n/a

20/12/23

UK CPI YoY

4.6%

n/a

20/12/23

UK RPI YoY

6.1%

n/a

22/12/23

UK Retail Sales YoY

-2.7%

n/a

22/12/23

UK GDP QoQ

0.0%

n/a

22/12/23

UK GDP YoY

0.6%

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2760

USD/JPY

141.85

GBP/EUR

1.1630

AUD/USD

0.6710

EUR/USD

1.0975

USD/CHF

0.8675

GBP/AED

4.6870

XAU/USD

2038

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7649

+2.65%

S&P

4719

+22.92%

EUROSTOXX

4542

+19.74%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

4.00%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+4.37%

5-year

+3.74%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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