Treasury Market Commentary –

Bank of England expected to hold rates next week

A weekly economic update from our Treasury team.

Published

27th October 2023

Category

Macro Commentary

Market focus is very much on next week’s UK and US central bank meetings, with no change to monetary policy expected as we reach the end of this aggressive tightening cycle.

The Bank of England now seems likely to hold rates steady until the latter half of next year when we expect the committee to start cutting rates to stimulate economic growth, against a hugely challenging economic outlook.

UK data this week indicates the jobs market, although still robust, is starting to cool slightly with the headline unemployment rate steady at 4.2%.

US treasury yields, a key barometer of market sentiment, have been particularly volatile this week, with the benchmark 10-year hitting 5%, its highest level since 2007, which further highlights the uncertainties facing investors in the months ahead. Against a weakening growth outlook, rate cuts are expected to start in the second half of next year.

The European Central Bank kept their monetary policy on hold this week as expected and they too are likely to have reached peak rates, with weak economic data showing an increasing risk of recession.

On the exchanges, dollar strength continues to drive momentum, driven by economic outperformance and safe-haven flows. GBP/USD remains volatile above the critical 1.2000 level, whilst GBP/EUR is trading near its 5-month lows below the pivotal 1.1500 level.

GBP/USD – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

31/10/23

EU CPI Core YoY

4.5%

n/a

1/11/23

US FOMC Rate Decision (Lower Bound)

5.25%

5.25%

2/11/23

UK Bank of England Bank Rate

5.25%

5.25%

3/11/23

UK S&P/CIPS Services PMI

49.2

n/a

3/11/23

UK S&P/CIPS Composite PMI

48.6

n/a

3/11/23

US Change in Nonfarm Payrolls

336k

173k

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2120

USD/JPY

150.20

GBP/EUR

1.1480

AUD/USD

0.6330

EUR/USD

1.0560

USD/CHF

0.8990

GBP/AED

4.4520

XAU/USD

1987

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7354

-1.30%

S&P

4137

+7.75%

EUROSTOXX

4049

+6.74%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

4.00%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.03%

5-year

+4.60%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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