Last week was pretty eventful with both the ECB and the Fed confirming 25 bps rises as expected, the key takeaways is that the Fed will probably pause for now and the ECB plans to continue. Following the Fed meeting we saw Western Alliance’s bank shares drop pretty steeply overnight, reigniting concerns in the U.S banking sector, just minutes after the Fed reiterated how strong and resilient the U.S banks were.
Interestingly, amongst the risk off sentiment in the market- we saw Sterling catch a bid and GBPEUR rose to 1.1460 on Friday alongside the GBPUSD price going above 1.26. With it being Bank holiday on Monday this week, we won’t see much movement on Sterling prices until Tuesday.
As far as economic data this week is concerned – we are not expecting much movement until Wednesday when the U.S releases inflation data – we are expecting Core inflation to come down to 5.5% (down by 0.1%) and the Inflation rate to remain at 5%.
Thursday is the most important day of this week as we have the Bank of England’s rate decision- we are again expecting a 25bps hike which will bring the UK base rate to 4.5%- however the only difference between the UK and Europe & the U.S is that inflation is not really coming down here, which means that interest rate hike’s are not currently having their desired effect. Most of the attention will not be on the hike but more on Governor Bailey’s commentary and forward guidance on what the Central Banks plans to do through the year to keep inflation down and controlled- this will be a volatile day for Sterling and in case of negative news this could erase Sterling gains seen over the last week.
Friday is another UK focused day with GDP on the agenda, balance of trade, and industrial and manufacturing production data all coming out in the morning- unfortunately forecasts are not positive, so a shock positive release could help Sterling, but if it all comes out as expected we are not really expecting much movement.