Quiet day in markets with the majors range trading on lower volatility. AUD pairs were the only pairs we saw any movement on today, with the GBPAUD extending moves lower. On the data front European retail sales came in better than expected at -2.6% versus -3%, but German factory orders came in lower than expected year-on-year at 9.9%. UK construction PMIs were positive for the UK, coming in at 51.6 versus an expected reading of 50.8.
Export data from China really disappointed by falling 7.5% compared to last year, signalling that global demand is falling.
UK house prices fell for the first time since 2012 in May, down by 1% from a year ago. The average house price is now at £286,652.00. The drop highlights once again the pressure on borrowers following a string of interest rate rises by the Bank of England. Mortgage rates in recent weeks have been rising after data showed that inflation has not weakened as expected, prompting markets to price in the prospect that the BoE will have to raise interest rates further.
* Daily move - against G10 rates at 5:00pm, 06.06.23
** Indicative rates - interbank rates at 5:00pm, 06.06.23
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A light day on the data front with Bank of Canada rate decision being the only highlight. Markets are expecting rates to be held for 4.5% currently with a 45% chance of a 0.25% hike today. However stubborn inflation, and a strong job market suggests that the BoC could well lean to the hawkish side on future rate hikes. This should be positive for CAD going forward, but the implications of a hawkish tone in the broader market could well lead to USD gains. Markets could price in additional hikes from the Fed also.
The impact of higher inflation and higher interest rates has had a deteriorating effect on house prices since June last year, and May's reading showed the first annual drop since 2012. Recently markets have priced in higher interest rate expectations from the Bank of England which has supported continued gains on GBP. However, the housing data will be concerning for the Bank, and should there be any suggestion that they won’t raise rates to this expectation, then this could well take GBP off recent highs
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