Treasury Market Commentary –

Rates now expected to hit 5.75% in November

A weekly economic update from our Treasury team.

Published

25th August 2023

Category

Macro Commentary

UK economic data this week continued to disappoint, with markets trimming back the forecasted Bank of England peak interest rate. A further 0.25% increase is fully priced in for September, with a 75% probability of a final 0.25% hike in November, taking rates to 5.75%.

Over tightening monetary policy is a real risk for the Bank, with the lagged effect of rate hikes over the past year still to fully take effect on the consumer.

US economic data was also weaker than expected, but overall, their economy continues to outperform. Inflation has dropped significantly, and the Fed is likely to stay on hold for the remainder of this year, before cutting rates into 2024 as the focus turns to stimulating growth.

In Europe, markets are very much split on whether we are at peak rates, or there is one further hike before year end, with this week’s data highlighting further weakness in the economy.

Focus today is very much on Fed chair Powell speaking at the Jackson Hole economic forum, with markets looking for clues to the future path of the monetary policy.

Elsewhere, the economic slowdown in China continues to be a real drag on global growth, and despite the authorities adding further stimulus, sentiment remains negative.

On the exchanges, holiday trading conditions means lower liquidity and a lack of conviction, with GBP/USD dropping to its recent lows below 1.2600, whilst GBP/EUR remains very much within the established 1.1500 – 1.1750 range.

GBP/USD – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

30/8/23

UK Mortgage Approvals

54.7k

n/a

31/8/23

EU CPI Core YoY

5.5%

n/a

1/9/23

US Change in Nonfarm Payrolls

187k

163k

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2590

USD/JPY

146.00

GBP/EUR

1.1665

AUD/USD

0.6425

EUR/USD

1.0790

USD/CHF

0.8855

GBP/AED

4.6230

XAU/USD

1915

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7338

-1.52%

S&P

4376

+13.98%

EUROSTOXX

4235

+11.65%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

3.75%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.61%

5-year

+4.91%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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