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  • richard evans

BoE leave rates unchanged, have we reached a peak?

Good morning

BoE did choose to leave rates unchanged at 5.25% yesterday, ending a run of 14 straight increases, in a move that surprised many. It was a close call, with four members wanting a rate rise and five voting for no change. GBP did drop, with GBPUSD trading to 1.2240 and GBPEUR to 1.1505. Bailey did warn against complacency in the fight against inflation and although BoE seem confident inflation will fall later this year, he made it clear the unchanged decision was tight and that BoE will act again if necessary.

This very slightly hawkish lean from BoE was enough to help GBP claw its way back up through the day, all the way to 1.2300 and around 1.1535. However this morning I see many banks adjusting their forecasts, now thinking this 5.25% level will be the peak and that he next move will be a rate cut, although not until mid-2024. There is a similar feeling that other central banks are also reaching a peak, explaining why GBP isn’t lower on these revised forecasts.

A slightly softer set of UK retail sales numbers this morning sent GBP a bit lower, as I type US Dollar is having a push higher with GBPUSD down to 1.2255 and EURUSD 1.0625, each coming off about 40 pips. I’m not yet sure what was responsible for that. UK PMIs this morning will be closely watched.

CBRT did indeed raise Turkish rates by 5% to 30%, there was a brief attempt by TRY to go higher but as we expected any TRY strength was immediately sold into and USDTRY is up at 27.11, EURTRY just short of 29.00. Further rate rises are expected from Turkey, with many looking for 35% rates by year end.

Early yesterday morning SNB surprised the markets by keeping rates unchanged when it was widely expected they would mirror ECB’s recent 25bps rise. CHF lost ground immediately with EURCHF trading up from 0.9565 to 0.9675, by the close it had settled back to 0.9635. SNB won’t mind a bit of CHF weakness at all but there’s a long way to go, the levels we see now in EURCHF are pretty much where it slumped to back in 2015 when SNB pulled their support of the 1.2000 floor. Not many fond memories from that!

USDJPY did drop back yesterday, from around 148.40 to 147.35. BoJ kept rates unchanged overnight, no major surprise although the lack of any mention of a move away from negative rates was enough to send USDJPY higher, back up to that 148.40 area this morning. Japan FinMin Suzuki said they will not rule out any options against excessive Yen moves, but as with other attempts of verbal intervention by Japanese officials this week, the comments were largely ignored by the markets.

Lots of sport coming up for the weekend including the North London derby between Spurs and Arsenal. Both teams will be looking to retain their unbeaten records so far this season. Arsenal, at home, are clear favourites. England will be hoping their ODI agaisnt Ireland will take place on Saturday after weather ruined the first match, while Englands rugby team will take on Chile in their latest world cup match. Should be a straightforward win for England, but I’m not sure it will be as one-sided as France Namibia yesterday, which France won 96-0, their biggest ever victory. Argentina v Samoa today could be a great match, as will Wales v Australia Sunday. Scotland will be hoping to overcome Tonga Sunday as well.

So a weekend full of sport, although with the weather showing signs of improvement over the weekend I’ll likely have a few jobs to do in the garden before I can put my feet up. Make the most of any decent weather, the forecast suggests we’re in for some wet weather through next week. I guess its almost October, after all.

- 09.00 EU manufacturing, services PMI

- 09.30 UK S&P manufacturing, services PMI

- 13.30 CAD retail sales

- 14.45 US S&P manufacturing, services PMI

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