Sterling maintained a firm tone after the latest labour-market data with expectations that the stronger than expected wages data would force the Bank of England to be more aggressive in raising interest rates with markets now pricing in five further rate hikes. UK 2-year gilt yields also increased to a 15-year high which underpinned the UK currency. There were, however, some reservations that the further rate hikes would undermine the economy, especially given the impact on mortgage rates. Bank of England Governor Bailey stated that the latest jobs data shows a very tight labour market and that inflation had been slower to fall than the central bank had hoped. MPC member Dhingra stated that inflation is still far too high relative to the target and that monetary policy is likely to be slow to take effect. There were no specific comments on interest rates, although the overall rhetoric suggested that she might be less dovish than previously.
No Key Data
The German ZEW economic confidence index edged higher to –8.5 for June from –9.4 previously and slightly stronger than expectations of –11.9. The Euro held a firm tone ahead of Tuesday’s New York open and nudged higher against the dollar.
No Key Data
US consumer prices increased 0.1% for May compared with consensus forecasts of 0.2% and the year-on-year rate declined sharply to 4.0% from 4.9%. This was slightly below market expectations of 4.1% and the lowest reading for just over two years. Food prices increased 0.2% on the month with an annual increase of 6.7%. Energy prices declined 3.6% on the month with an annual decline of 11.7%. Core prices increased 0.4% on the month which was in line with consensus forecasts and the annual increase also met expectations at 5.4%. There was the second successive monthly increase of over 4.0% for used vehicle prices which pushed the rate higher. The Federal Reserve will announce its latest policy decision on Wednesday with expectations that the central bank will leave rates at 5.25%. The statement and press conference will be very important and the central bank will also release the latest ‘dot plot’ forecasts of Fed Funds rates by committee members. Markets expect that the overall rhetoric will be relatively hawkish, but there will be a big market reaction if there are suggestions that rates have peaked.
Key Data
19.00 Fed Interest Rate Decision Exp. 5.25% Prev. 5.25%
19.00 Fed Monetary Policy Statement
19.30 FOMC Press Conference