The improved risk sentiment continued yesterday afternoon, which caused a continued weakening of USD ahead of today's inflation numbers. GBP continues to be the biggest benefactor amongst the G10, with the GBP index now at the highest since April 2022. Yesterday's higher than expected wage numbers also added to the demand for GBP.
Europe's latest ZEW survey continued to disappoint, with expectations of economic growth now at the lowest since December 2022. GBPEUR currently trades at 10-month highs.
The Reserve Bank of New Zealand elected to hold interest rates at 5.5% this morning – interest rate differentials continue to keep GBPNZD elevated, with the pair at the highest since April 2020.
* Daily move - against G10 rates at 7:30am, 12.07.23
** Indicative rates - interbank rates at 7:30am, 12.07.23
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All eyes on US inflation numbers today. As we can see there is expectation for inflation to continue its steady decline from 4% to 3.1%, but it’s the core number that will be of concern for the Fed. Markets continue to price in the chances of a 0.25% hike by the Fed later this month. USD demand continues to be waning with the USDindex back near the lows of 2023, with the increased risk appetite in markets. A combination of a higher inflation number and risk appetite weakening will likely be needed to see the USD gain some solid support.
GBP remains the darling of the markets and continues its upward march, with the index now at the highest since April 2022. The contributing factors remain the continued appetite for risk in markets, with equities continuing to rise and yields on UK governments bonds rising as well.
The Bank of England has warned of headwinds for the economy, stating that over 4,000,000 households will face a sharp increase in mortgage costs, with the average borrower paying almost £3,000 more. However, these warnings continue to be ignored by the markets, but we do have to ask ourselves, for how long?
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