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  • richard evans

BoE and ECB raise rates 50bps, EUR up, GBP down

Good morning

BoE and ECB both raised rates 50bps yesterday to 2% as expected but it was ECB that was the more hawkish of the two, with Lagarde making it clear markets should expect more rate rises, more in fact than the market is currently pricing in. Some ECB members were looking for a 75bps rise yesterday, instead they settled for 50bps with a feeling that we could be in for two more 50bps rises if inflation fails to improve. Peak rates could be at 3%, but there is some thinking we could see 3.25% by mid-2023 if inflation persists. We do have a couple of ECB members speaking today, will be interesting to hear what they have to say about both the rate move and Lagardes forward guidance.

BoE also raised rates 50bps to 3.5%, Mann actually voted for a 75bps rise while Tenreyro and Dhingra voted for no change. Bailey warned of the risk that remain to the upside for inflation but did note that inflation may have peaked and that lower inflation is becoming evident. The divergence in views among BoE members could suggest that the end of the rate rise cycle is nearer than previously thought.

So while both ECB and BoE moved rates the same, the more hawkish ECB has led to a stronger EUR against GBP. As I type GBPUSD is down at 1.2170 while EURUSD has held recent gains to sit at 1.0640, which means GBPEUR is down to 1.1435, some 200 points down from this time yesterday. GBP found no support from a lower than expected set of retail sales data this morning. I have seen some rather bearish comments on GBP looking for lower levels against EUR.

Keep an eye on EURCHF. SNB also raised rates 50bps yesterday but there is some suggestion they could slow or even pause rate rises in the coming months, which, when compared to the hawkish ECB could eventually see EURCHF test up to parity.

The head of Ukrainian armed forces, General Zaluzhny, has warned that Russia is preparing for another offensive that would take them deep into Ukrainian, with sights set on Kyiv. There has been optimism recently over the way Ukraine has pushed back Russian forces but he believes Russia will have another go in the new year.

Into the weekend and I can report it is getting warmer. I drove my wife to the station this morning and the car showed a rather heady -7.5 degrees, some two deghress warmer than yesterday! It is ridiculously freezing still. The forecast promises warmer weather into the weekend although that will bring with it some rain. I wonder how long it will be before I complain about the rain and say I prefer the below zero temperatures!

To the weekend, and Sunday afternoon we will see Argentina battle it out against France in the world cup final. Before then on Saturday, Morocco and Croatia will play in the third/fourth play off, a rather miserable match for both teams but could still prove to be worth watching. Overall I have to say that it has been a pretty decent world cup with many exciting matches. I hope the final lives up to expectations.

Have a terrific weekend if we don’t speak before.

- 09.00 EU S&P manufacturing, services PMIs

- 09.30 UK S&P manufacturing, services PMIs

- 10.00 EU HICP

- 11.00 ECBs Centeno speaks

- 11.30 ECBs Knot speaks

- 14.45 US S&P manufacturing, services PMIs

- 17.00 Feds Daly speaks

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