July 20, 2023

Daily Report 20/07/2023

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Sterling continued to lose ground on Wednesday following the weaker than expected inflation data. There was a sharp decline in UK yields on the day which undermined the UK currency. There was also a significant shift in Bank of England expectations with expectations of peak UK rates dropping towards 5.75% from 6.00% ahead of the data. The UK currency lost ground despite a strong advance in UK equities and significant net gains in global markets. Bank of England deputy Governor Ramsden stated that inflation is still much too high and if there is evidence of persistent inflation pressures then further monetary policy tightening would be required. He added that energy prices had fallen more than expected while other elements remain elevated. He was, however, reluctant to give any significant policy guidance ahead of the August policy meeting.

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The final Euro-Zone core consumer prices inflation reading for June was revised marginally higher to 5.5% from the flash reading of 5.4%. Higher core inflation may nudge the ECB towards a more hawkish policy stance, although the overall impact should be measured at this stage. There was still some speculation that the ECB would adopt a less hawkish stance after a July rate hike and the Euro was unable to make any headway.

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US housing starts declined to an annual rate of 1.43mn for June from a revised 1.56mn the previous month and slightly below consensus forecasts of 1.48mn. Building permits also retreated to 1.44mn from 1.50mn and slightly below expectations. The data is liable to dampen expectations of a housing-sector recovery to some extent with wider US trends in focus.

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