June 19, 2023

Daily Report 19/06/2023

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There were no significant domestic developments during Friday. The UK 2-year yield remained close to 15-year highs above the 4.90% level which continued to provide important Sterling support. The UK currency posted 13-month highs against the Dollar and 11 month highs against the Euro. CFTC data recorded a decline in long, non-commercial Sterling positions to below 7,000 contracts from 12,500 previously. The latest inflation data will be released on Wednesday with the Bank of England policy decision on Thursday.

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According to the latest Bundesbank forecasts, the German economy will contract 0.3% in 2023 with GDP growth of 1.2% next year while inflation will remain above the 2% level until at least 2025. The rhetoric had little overall market impact. There was further hawkish ECB rhetoric during the day. Council member Holzmann stated that further action will be needed beyond July if things continue as they are. Fellow member Centeno added that rates should remain in restrictive territory for some more time after the summer. Bundesbank head Nagel also warned that rates may need to increase beyond July with markets speculating over a September rate hike.

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The University of Michigan consumer confidence index improved to 63.9 according to the flash June reading from 59.2 previously and above consensus forecasts of 60.0. There were significant net gains for the current conditions and expectations components. The 1-year inflation expectations reading dipped sharply to 3.3% from 4.2% previously while the 5-year expectations index edged lower to 3.0% from 3.1%. The New York Fed inflation expectations index also dipped to 3.5% for May from 4.0% previously.

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