Update –

Treasury Market Commentary

A weekly economic update from our Treasury team.

Published

16th July 2021

Category

Macro Commentary

UK inflation jumped above the Bank of England’s target in June, hitting 2.5%, its highest level in almost three years. The central bank insists this inflationary pick-up will be temporary, and they expect it to fall back below their 2% target next year. The market, however, increasingly believes the Bank could start to reduce their QE program in the coming months and raise interest rates next year. 

The jobs market also bounced back strongly last month as the economy reopened, with payrolls and wages rising at a record pace. 

The main concern is how jobs and wages will be affected by the end of the furlough scheme in September.

The focus now is on next week’s lifting of restrictions and how this will affect virus transmission rates and hospitalisations.

In the US, inflation data was again stronger than expected, increasing the pressure on the Fed to tighten monetary policy sooner, by initially tapering their QE program. Chairman Powell, however, stressed that they see the current inflationary pressures as transitory, driven by the economic reopening, and that the central bank remains extremely cautious on the outlook.

US company earnings data has been strong and equity markets remain near their all-time highs.

On the exchanges, dollar volatility remains high with US fixed income markets continuing to drive market sentiment.

GBP/USD continues to find demand around the 1.3700 April lows, with the pivotal 1.4000 level continuing to cap the topside.

GBP/EUR initially pushed up towards 1.1760 this week, just ahead of the yearly highs of 1.1800 on the strong UK data, but has since drifted lower. Strong support remains at 1.1500.

GBP/EUR – 1-year chart

Week Ahead

Date

Release

Last

Expected*

21/7/21

UK Public Finances (PSNCR)

21.7bn

n/a

22/7/21

EU ECB Deposit Facility Rate

-0.50%

-0.50%

23/7/21

UK Retail Sales YoY

24.6%

9.8%

23/7/21

UK Markit/CIPS Services PMI

62.4

62.5

23/7/21

UK Markit/CIPS Composite PMI

62.2

62.5

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

EUR/USD

1.1800

USD/JPY

110.15

GBP/USD

1.3795

AUD/USD

0.7425

GBP/EUR

1.1690

GBP/AED

5.0690

USD/CHF

0.9195

XAU/USD

1822

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7013

+8.56%

S&P

4360

+16.08%

EUROSTOXX

4055

+14.16%

UK Benchmark Rates

Libor

 

Swap Mid (SONIA) ss((SONIA)

 

3 month

0.07813%

2 year

+0.11%

12 month

0.17625%

5 year

+0.33%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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