Treasury Market Commentary –

Could rates start to fall in 2023?

A weekly economic update from our Treasury team.

Published

16th December 2022

Category

Macro Commentary

A significant week for financial markets, with the Fed, Bank of England and European Central Bank all raising rates by 0.50%. Further hikes in the coming months are likely as inflation remains uncomfortably high, however, we should see rates peaking mid-2023 as the focus switches to recession. Potentially, we may see interest rate cuts later next year to stimulate growth.

The UK central bank vote was split three ways, highlighting the challenges ahead, with rates now at a 14-year high.

UK inflation dropped to 10.7%, adding to hopes that last month’s 41-year high was the peak. The jobs market remains robust, but with average earnings rising 6.1% and inflation likely to remain above 10% in the coming months, the squeeze on disposable income continues.

Critically important US inflation slowed by more than expected to 7.1%, reinforcing the view that we have now seen the peak, and the Fed will slow policy tightening.

Events in China continue to be a key driver of market sentiment, with growing optimism that further covid reopening into next year can help underpin economic growth.

On the exchanges, another hugely volatile week with the dollar remaining under pressure following the drop in US inflation. GBP/USD pushed up to 6-month highs above 1.2400 before easing back, whilst GBP/EUR remains volatile within the well-established 1.1250 – 1.1750 range, with the Euro generally higher following the hawkish comments from ECB president Lagarde.

This report will return in the new year. May we wish all our clients a very happy Christmas and prosperous 2023!

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

21/12/22

UK Public Finances (PSNCR)

9.7b

n/a

22/12/22

UK GDP QoQ

-0.2%

n/a

22/12/22

UK GDP YoY

2.4%

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2180

USD/JPY

137.25

GBP/EUR

1.1450

AUD/USD

0.6700

EUR/USD

1.0640

USD/CHF

0.9285

GBP/AED

4.4740

XAU/USD

1777

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7426

+0.56%

S&P

3895

-18.26%

EUROSTOXX

3835

-10.76%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+4.24%

5-year

+3.73%


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