A song for Europe

Market reports
Thanim Islam
  • US inflation continues to decline
  • GBPUSD hits highest levels since April 2022
  • EUR demand at highest since March 2022


US inflation continued on its downward trajectory, with the core number number at the lowest since November 2021, and headline inflation now at the lowest since April 2021. As a result markets are now pricing in only one more rate hike of 0.25% by the Fed, and then keeping rates on hold until the end of the year. US treasury yields declined taking USD lower with it. The USD index is now through this year's lows and at the lowest since April 2022. Interestingly rate expectations for the UK also eased by 25 bps following the lower US inflation print, and as a result as we can see below GBP weakened across the board.  

The biggest out-performer on the day was the EUR as interest rate expectations remained firm, with markets pricing in two more hikes of 0.25% before the ECB then elect to hold them. Increased risk appetite is also likely aiding the EUR.


Market rates

* Daily move - against G10 rates at 7:30am, 13.07.23

** Indicative rates - interbank rates at 7:30am, 13.07.23

Data points


  • None today.

Our thoughts

UK GDP for May came in better than expected at -0.1% versus an expected fall to -0.3%. The data suggests that GDP in the second quarter is likely to be flat following a gain of 0.1% in the first quarter. A stronger performing economy is likely adding to inflationary pressures within the UK, so today's data point along with the higher wage numbers earlier in the week will add more pressure on the Bank of England and their battle with bringing inflation down. The GBP index remains near the best levels since April 2022.

With inflation continuingly dropping in the US, the USD index fell through a key support level suggesting further declines on the currency. In contrast flows into the EUR has picked up with the EUR index going through resistance levels, and now at the highest level since March 2022.

Today's focus will fall on inflation numbers on a producer price level from the US. Further decline on these numbers will likely add to further weakness on USD.

Chart of the day

The EUR continues to draw demand with pro-cyclical currencies benefitting from the lower inflation numbers out of the US yesterday. In the environment of inflation falling in the US, there is a growing expectation that the Fed will do their final interest rate hike this month, and as a result risk appetite continues to increase with equities now at the highest since April 2022. The resilience of the eurozone economy continues to be doubted, with confidence at the lowest since December 2022 - but for now this seems to be being largely ignored.

Source: Bloomberg Finance L.P.

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