Treasury Market Commentary –

Core inflation dropped to 6.9%

A weekly economic update from our Treasury team.

Published

21st July 2023

Category

Macro Commentary

UK headline inflation fell below 8% for the first time in over a year, underlining hopes that the worst may be over. Core inflation, which is key to the Bank of England, dropped to 6.9%.

With indications that the jobs market is also starting to soften, the Bank may opt for a smaller 0.25% rate hike in August, although another 0.50% remains a real possibility. Despite the encouraging data, inflation is still much too high versus the 2% target.

Markets have now trimmed the expected rate peak to just above 5.75% by year end, however the Bank faces the monumental challenge of bringing inflation lower without causing long term harm to the economy.

In the US, focus is very much on next week’s central bank meeting, with the Fed expected to hike by a further 0.25%, taking rates to 5.50%. This is likely to be the peak in this historic tightening cycle, with US inflation falling to 3%.

The European Central Bank also meet next week, with a further 0.25% rate increase expected, and markets forecasting one more hike in September to what would then be the likely peak.

Elsewhere, concerns over the strength of the Chinese economy are weighing on global market sentiment, with growth data continuing to disappoint.

On the exchanges, sterling hit its highest level against the dollar in over a year, towards 1.3150 before falling lower following the drop in UK inflation. GBP/EUR hit a new year-to-date high of 1.1750 before dropping aggressively lower, towards the 1.1500 level, as the market reined in the expected peak in UK rates.

GBP/USD – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

24/7/23

UK S&P/CIPS Manufacturing PMI

46.5

n/a

24/7/23

UK S&P/CIPS Services PMI

53.7

n/a

24/7/23

UK S&P/CIPS Composite PMI

52.8

n/a

26/7/23

US FOMC Rate Decision (Upper Bound)

5.25%

5.50%

27/7/23

EU ECB Deposit Facility Rate

3.50%

3.75%

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2880

USD/JPY

140.15

GBP/EUR

1.1575

AUD/USD

0.6785

EUR/USD

1.1130

USD/CHF

0.8660

GBP/AED

4.7370

XAU/USD

1906

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7275

-2.36%

S&P

4534

+18.59%

EUROSTOXX

4219

+11.23%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.59%

5-year

+4.78%


View Arbuthnot Latham’s Private and Commercial deposit rates.

This document should be considered a marketing communication for the purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. The information given in this document is for information purposes only and is not a solicitation, or an offer to buy or sell any security or any other investment or banking product. It does not constitute investment, legal, accounting or tax advice, or a representation that any investment or service is suitable or appropriate to your individual circumstances.

You should seek professional advice before making any investment decision. The value of investments and the income from them can fall as well as rise. An investor may not get back the amount of money invested. Past performance is not a reliable indicator of future results. Investment returns may increase or decrease as a result of currency fluctuations.

The facts and opinions expressed are those of the author of the document, as of the date of writing and are liable to change without notice. We do not make any representations as to the accuracy or completeness of the material and do not accept liability for any loss arising from the use hereof. We are under no obligation to ensure that updates to the document are brought to the attention of any recipient of this material. Please note that this commentary may not be reproduced, distributed, disseminated, broadcasted, sold, published or circulated without prior consent from Arbuthnot Latham & Co., Limited. Arbuthnot Latham & Co., Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

 

 

Weekly

Treasury Market Commentary

Would you like to receive Arbuthnot Latham’s weekly Treasury Market Commentary directly to your email inbox? Click the button to subscribe to our email newsletters.

Subscribe to our newsletters

Contact Details

London Office

+44 (0) 20 7012 2599

DG-FX@arbuthnot.co.uk