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  • richard evans

Race to reach neutral on rates

Good morning

UK inflation hits 9% as ex-BoE head King says rates at 1% are just nowhere near enough and wants a sign that BoE are really determined to get on top of the problem. I wonder whether there will be any talk of 50bps rate rises sometime in the coming weeks, we have seen other central banks forced to push rates more than 25bps. Even ECBs Knot said they ECB could push rates up 50bps in July.

Feds Mester has become one of the first Fed officials to say a 75bps rise is on the table at their next meeting. Feds Evans meanwhile has said he would like to see speeding up of tightening. Powell continued with his hawkish talk, making it clear rates will move to neutral and even beyond, until it is satisfied it has some control on inflation. Strong US retail sales yesterday, including upside revision to last months release, suggests rises so far have not hurt the economy too hard. A long way to go mind you, but for now the talk of recession is a little quieter.

Despite this USD has failed to recover its recent losses, with GBPUSD in mid 1.24s and EURUSD 1.0520, EURGBP at 0.8455 (GBPEUR 1.1825). As you know I’m a little worried about GBP while this NI protocol talk goes on. EU made some noises that they may be willing to make changes to the Agreement, but whether this is enough to stop UK tearing up the agreement remains to be seen. As I type GBP may be just losing some of its gains, I had warned that we’d likely see selling of GBP on rallies, GBPUSD tested 1.2500 several times but failed to break and is slipping back. Lets see if 1.2400 holds.

China markets ended lower, no sooner did Shanghai say they had not community cases, markets look at Beijing where Covid cases are on the rise. Number still relatively low but with their zero Covid policy, lockdowns are highly likely. In the US, a new Covid wave seems to be in the making, with firms such as Apple looking to reintroduce face masks in stores and even in common spaces at their headquarters.

Closer to home, it wasn’t that long ago that I could name several people I knew, or knew of, with Covid. Right now I do not think I can name one. I’m certainly not saying its gone away but the signs are encouraging.

CAD CPI today, markets looking for numbers similar to last month, anything firmer will likely send CAD a touch higher although market already looks for a 50bps rate rise in June, following Aprils 50bps rise. Inflation numbers from the EU today are final reading and as such should be close to expectations and shouldn’t provide any great shock.

I’m out and about meeting clients today, there will be no report tomorrow, normal service to resume Friday. I’ve added Thursdays calendar below, looks quite lengthy. By the time you get my next report we’ll have seen UK retail sales numbers. I’m still wondering whether high retail sales data is down to high prices or high demand. Answers on a postcard please….

- 10.00 EU HICP

- 13.30 US building permits, housing starts

- 13.30 CAD CPI

- 21.00 Feds Harker speaks


- 00.50 Japan merchandise trade balance

- 02.30 AUS unemployment

- 03.00 NZ budget

- 12.30 ECB minutes

- 13.30 UYS initial jobless claims, philly fed survey

- 13.30 ECBs de Guindos speaks

- 13.30 CAD new house prices

- 15.00 US existing home sales

- 23.45 NZ trade balance

- 00.01 UK GfK consumer confidence

- 00.30 Japan CPI

- 02.30 PBoC rate announcement

- 07.00 UK retail sales

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