June 13, 2023

Daily Report 13/06/2023

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Sterling gained support from a further increase in yields with the 2-year yield hitting fresh 8-month highs above 4.55%. There were further expectations that the Bank of England would increase rates multiple times over the next few months with a peak around 5.50%. In comments on Monday, Bank of England MPC member Haskel stated that further policy tightening cannot be ruled out. He added that the bank is monitoring indicators of inflation momentum and persistence closely and that policy should lean against the risk of inflation. Fellow MPC member Mann stated that UK data and surveys have remained positive since May’s central bank forecasts. She added that wage increases of 4% would make it a challenge to reduce inflation to the 2% target and she also questioned how tight financial conditions are. The latest UK labour-market data was stronger than expected with a decline in the unemployment rate and net increase in employment. The wages data recorded a headline annual increase of 7.2% from 6.8% previously.

Key Data 

15.00 Andrew Bailey Speech

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The Euro posted significant gains after Monday’s European open and advanced to highs against the dollar. This was marginally above Friday’s high, but there was no challenge on higher levels and the dollar recovered some ground into US trading. Moves in yields were the primary influence with the Euro retreating as US yields edged higher. There are still strong expectations that the ECB will hike rates by 25 basis points at this week’s policy meeting. Overall volatility remained subdued during the day with the Euro resisting further selling pressure later in the session.

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The latest US consumer prices inflation data will be released on Tuesday. Consensus forecasts are for prices to increase 0.2% on the month with the year-on-year rate declining sharply to 4.1% from 4.9% due to a favourable base effect. Underlying prices are expected to increase 0.4% with a small decline in the annual rate to 5.3% from 5.5%. A stronger than expected reading for the data would increase pressure on the Fed to raise rates again.

Key Data 

13.30 Consumer Price Index ex Food & Energy (MoM) (May) Exp. 0.4% Prev. 0.4%

13.30 Consumer Price Index ex Food & Energy (YoY) (May) Exp. 5.3% Prev. 5.5%