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  • richard evans

GBP vulnerable as focus on Fed, ECB rate rises

Good morning

Feds Powell made it clear that more rate rises are appropriate, noting that inflation in the US is more about demand than in other countries. Overall, the picture remains the same, rate rises to come, another 75bps next time round seems most likely, Powell is not taking 100bps completely off the table but its not expected. His commitment to fighting inflation will not, he hopes, trigger a recession but does add that a soft landing will be very challenging. Powell speaks again later this afternoon.

Euro is firmer helped in part by a Reuters poll that sees ECB rates at 0.75% by year end, starting with a 25bps rise in a months time. There is some talk of a 50bps rise although for now 25bps seems more likely. Either way, come September it is highly likely we will move away from negative rates in the Eurozone. Meanwhile Macron has said he will be working to find a new majority in the coming weeks, that could well be harder than he thinks. A spell of USD strength this morning sees EURUSD trade sharply lower from 1.0575 to 1.0505 but it has held gains against GBP, EURGBP currently 0.8620 (GBPEUR 1.0600). EU leaders are meeting later today, before then we will have EU PMI data, those released so far have come in lower than expected so I’m not sure we’ll see any support from this data.

GBP itself is struggling, GBPUSD had tested just above 1.2300 yesterday but as I type that USD strength I talked of has seen the pair trade to 1.2180. Another rtain strike today and I see that Merseyrail have agreed a 7% pay rise which I assume sets something of a precedent for other rail operators and indeed other unions. Already talk of another wave of rail strikes in early July if talks lead to nothing. Retail sales numbers early tomorrow morning expecting to show a significant decline.

USDJPY traded lower overnight as Nakao, an official at Japans MoF, said FX intervention cannot be ruled out, although he did add that coordinated intervention would likely prove very difficult. USDJPY, which had been up at 136.60 this time yesterday, traded down to 135.15. Currently 135.50. With USDJPY lower and GBPUSD lower it is no surprise GBPJPY has slipped, currently 165.00. GBP is holding up against AUD, which is under pressure on lower commodity prices. GBPAUD 1.7715.

So, after a fairly quiet start to the week we are starting to see markets take something of an uncertain and nervous stance. Difficult to work out a lot about direction although GBP looks one of the most vulnerable currencies right now.

- 09.00 ECB economic bulletin

- 09.00 EU S&P manufacturing, services PMIs

- 09.30 UK S&P manufacturing, services PMIs

- 13.30 US initial jobless claims

- 14.45 US S&P manufacturing, services PMIs

- 15.00 Feds Powell speaks

- 21.30 US bank stress test data

- 00.01 UK GfK consumer confidence

- 00.30 Japan CPI

- 07.00 UK retail sales

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