Treasury Market Commentary –

UK markets pricing in one more base rate hike

A weekly economic update from our Treasury team.

Published

29th September 2023

Category

Macro Commentary

Global equity markets remain under pressure driven by central banks, particularly the Fed, insisting interest rates will remain higher for longer, with US Treasury yields hitting multi-year highs. Further negative economic data from China is adding to the risk-off sentiment, underpinning dollar strength.

In the UK, markets are pricing in one further rate hike, with the Bank of England facing unprecedented challenges of inflation remaining too high, a tight jobs market and high interest rates weighing on demand. The high oil price and weakening sterling, making imports more expensive, are further stoking inflationary pressures, driving a growing risk of economic stagflation.

The US economy continues to strongly outperform, driving dollar momentum, with a further rate hike in the coming months a real possibility. There is, however, a risk of a government shutdown next week if Congress fails to reach an agreement on funding.

In Europe, increasing risks of a recession are weighing on the single currency and increasing the likelihood that interest rates have peaked, following the recent hike, with unchanged monetary policy priced until late 2024, when an initial rate cut is expected.

On the exchanges, dollar strength continues to drive sentiment, with GBP/USD trading at new 6-month lows around the 1.2200 level, whilst GBP/EUR dropped to a 2-month low of 1.1500, where we are seeing some initial demand.

GBP/USD – 1-year chart

Graph GBP Currency Last Price 1 year chart

Week Ahead

Date

Release

Last

Expected*

2/10/23

UK Nationwide House Px. NSA YoY

-5.3%

-5.8%

4/10/23

UK S&P/CIPS Services PMI

47.2

n/a

4/10/23

UK S&P/CIPS Composite PMI

46.8

n/a

5/10/23

UK New Car Registrations YoY

24.4%

n/a

6/10/23

US Change in Nonfarm Payrolls

187k

160k

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.2240

USD/JPY

148.80

GBP/EUR

1.1560

AUD/USD

0.6475

EUR/USD

1.0590

USD/CHF

0.9110

GBP/AED

4.4950

XAU/USD

1865

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7602

+2.02%

S&P

4299

+12.44%

EUROSTOXX

4159

+9.65%

Central Bank Key Deposit Rates

BOE

FED

ECB

5.25%

5.25%

4.00%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+5.23%

5-year

+4.68%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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