Treasury Market Commentary –

US interest rates tipped to hit 3.6% in 2022

A weekly economic update from our Treasury team.

Published

17th June 2022

Category

Macro Commentary

The US central bank raised interest rates by 0.75%, its biggest hike in nearly 30 years, as they continue their aggressive path of policy tightening. Further hikes are expected in the coming months as they continue to fight surging inflation. Market expectations are for US rates to reach 3.60% by year end.

In the UK, the Bank of England raised rates by 0.25%, its fifth consecutive rise, as they balance the risks of inflation heading towards 11% and an extremely tight jobs market, against an ongoing cost of living squeeze and a weakening economy. Despite recession being a real threat, the committee was more hawkish than expected, opening the door to a 0.50% rise in August, with analysts now forecasting a Bank rate of 3.00% by year end.

In Europe, the ECB called an emergency meeting, announcing measures to deal with the fragmentation of yields within the Eurozone. The central bank has recently raised the rhetoric on policy tightening as they look to start raising rates from next month.

Rising tensions between the UK & the EU over the Protocol are adding to the challenging outlook, with the EU resuming legal action.

The ongoing uncertainty continues to drive huge volatility across markets, with equities and bonds continuing to fall sharply and treasury yields hitting multi-year highs.

On the exchanges, sterling has been hugely volatile, with GBP/USD dropping to a 2-year low below 1.2000, where it has found a base for now, before moving aggressively higher to the 1.2300 level.

GBP/EUR hit a yearly low below 1.1500 before recovering strongly back to 1.1700.

GBP/EUR – 1-year chart

Week Ahead

Date

Release

Last

Expected*

20/6/22

UK Rightmove House Prices YoY

10.2%

n/a

22/6/22

UK CPI YoY

9.0%

n/a

22/6/22

UK RPI YoY

11.1%

n/a

23/6/22

UK S&P/CIPS Services PMI

53.4

n/a

23/6/22

UK S&P/CIPS Composite PMI

53.1

n/a

24/6/22

UK Retail Sales YoY

-4.9%

-4.3%

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2295

USD/JPY

134.30

GBP/EUR

1.1695

AUD/USD

0.6985

EUR/USD

1.0515

USD/CHF

0.9665

GBP/AED

4.5150

XAU/USD

1844

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7044

-4.60%

S&P

3666

-23.07%

EUROSTOXX

3427

-20.25%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+2.98%

5-year

+2.78%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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