UK government two-year borrowing costs have risen above 5% for the first time in 15 years amid mounting expectations that the Bank of England will lift interest rates again this week as it battles to contain inflation. The news also added that the Gilt yields, which move inversely to the British Pound prices, have soared in recent days as traders bet that Threadneedle Street will need to raise rates further and will keep them higher for longer than had been anticipated.
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Germany’s Producer Price Index rose by 1.0% for May versus 1.7% YoY expected and 4.1% prior. European Central Bank policymaker Peter Kazimir said on Monday, “We need to raise rates again in July.” On the same line, ECB Chief Economist Philip Lane said that another rate hike in July seemed appropriate but noted that the decision in September will depend on incoming data, per Reuters. Furthermore, ECB Governing Council member Isabelle Schnabel also said, “Risks to the inflation outlook are tilted to the upside.” ECB’s Schnabel also cited the need to keep raising interest rates until seeing convincing evidence that developments in underlying inflation are consistent with a return of headline inflation to 2%.
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The likelihood of another 25 bps hike at the Fed’s upcoming meeting in July remains high, supported by the continued strength of key US fundamentals such as employment and prices. The NAHB Housing Market Index for June showed growth, coming in at 55, this was above expectations of 51 and the previous reading of 50.
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