GBP continues its impressive run higher after yesterday's job numbers elevated expectations for the Bank of England to lift interest rates to near 6% in 2024. 2-year gilts rose by 25 bps as a result, and are now higher than the levels seen during the mini-budget. Following on from this we had three members from the BoE speak, with a very mixed message. Governor Bailey stated that there is clear evidence that the job markets is still very tight, and inflation is taking longer than expected. Chief economist Huw Pill said the Bank is aware of the hardship households are facing with higher interest rates, and thus must find a balance on fighting inflation without damaging the economy too much, echoing Governor Bailey’s comments last April. And dovish policy maker Dhingra urged patience in bringing inflation lower. Overall GBP continues to be favoured by markets based on interest rate differentials.
* Daily move - against G10 rates at 5:00pm, 13.06.23
** Indicative rates - interbank rates at 5:00pm, 13.06.23
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GBP still pushing on strong this morning with the GBP index continuing to make new yearly highs. However, the rise in gilt yields is forcing lenders to pull existing mortgage products. Concerns of the implications of higher mortgage rates remain a big headwind for the economy and the performance of GBP. However, this doesn’t seem to be a concern for markets at the moment.
All eyes on the Fed tonight with the likelihood of rates staying at 5.25%. We have seen this largely priced in by markets over the last few weeks, and USD will take cues from Fed Powell in the accompanying statement and whether there will be a resumption of hikes from July.
GBP continued its march higher as markets continued to price in an expectation for interest rates to peak to 6% in 2024. As a result yields on 2-year gilts surpassed the highs seen during Liz Truss mini-budget. Its worth noting these two peaks are for two different reasons. The mini-budget sparked a crisis in the UK economy and the panic saw UK gilts sell off, causing yields to spike. However this time around, the expectation of higher interest rate is causing the bond sell-off, and the attraction of higher yields in the UK is attracting demand for GBP.
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