Treasury Market Commentary –

Fed and ECB hike rates, Bank of England expected to follow

A weekly economic update from our Treasury team.

Published

28th July 2023

Category

Macro Commentary

The US central bank raised interest rates by a further 0.25% as widely expected, in what could be the last hike in this historic tightening cycle. The Fed target rate now stands at 5.25% - 5.50%, a 22-year high. Although US inflation has dropped to a remarkable 3%, risks remain as the economy continues to outperform and the jobs market remains tight.

The European Central Bank also raised rates by 0.25%, taking the key deposit rate to 3.75%. Despite the hawkish message, markets are mixed on whether we get a further hike in September or are already at the peak. Economic data this week showed a weakening of growth conditions and business expectations, highlighting the risks of overtightening and driving the economy into a recession.

In the UK, focus is very much on next week’s Bank of England meeting, with markets favouring a 0.25% rate increase, though a 0.50% hike remains a real possibility. Data this week has been weaker than expected, including the crucial services sector, with no further significant releases due ahead of next week’s decision. Further hikes are forecast in the coming months, to take Bank rate to 5.75% by year end.

On the exchanges, sterling has eased back from its recent highs against the dollar on strong US growth data but is trading up towards 1.1700 versus the Euro.

GBP/USD – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

31/7/23

EU GDP SA YoY

1.0%

n/a

31/7/23

EU CPI Core YoY

5.5%

n/a

1/8/23

UK Nationwide House Px NSA YoY

-3.5%

-4.0%

3/8/23

UK S&P/CIPS Services PMI

51.5

n/a

3/8/23

UK S&P/CIPS Composite PMI

50.7

n/a

3/8/23

UK Bank of England Bank Rate

5.00%

5.25%

4/8/23

US Change in Nonfarm Payrolls

209k

185k

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2795

USD/JPY

139.15

GBP/EUR

1.1665

AUD/USD

0.6640

EUR/USD

1.0965

USD/CHF

0.8720

GBP/AED

4.6980

XAU/USD

1950

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7692

+3.23%

S&P

4537

+18.18

EUROSTOXX

4447

+17.23%

Central Bank Key Deposit Rates

BOE

 FED

ECB

5.00%

5.25%

3.75%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.62%

5-year

+4.87%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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