GBP continued its impressive run higher, with GBPUSD climbing to the highest level since April 2022. EURUSD also pushed on higher after yesterday's ECB meeting with President Christine Lagarde, firming up the expectation for another 0.25% hike in July. USD in general had a very poor afternoon despite retail sales figures coming in better than expected. It seems following the Fed meeting, US markets have taken the view that both the BoE and ECB will keep hiking rates for longer. What also hasn’t helped USD has been the continuation of increased risk appetite in markets. The S&P 500 stock index is now at the highest since April last year.
* Daily move - against G10 rates at 5:00pm, 15.06.23
** Indicative rates - interbank rates at 5:00pm, 15.06.23
-1.avif)
-1.avif)
We could see increased volatility in markets today as we hit an event known as Triple-Witching: a day when stock options, index futures, and index options all expire on the same day. The day coincides with with the inversion of US and German yield curves deepening to the levels last seen in March, pointing to concerns that elevated interest rates will force economies into recession. So markets will have to decide whether recent risk appetite continues or they take a more bearish view and hedge their exposure. So could we see recent market moves reverse?
On the data front, we have final readings for May's inflation numbers from Europe, expected to show CPI at 6.1% and core CPI at 5.3%. Ahead of next week's Bank of England meeting we have the BoE/Ipsos inflation survey for the next 12 months, which could be very key to gauge what the BoE decide next week.
Recession fears have increased again if the inversion on US yield curves are anything to go by, with levels now back at where they were in March and historically at the deepest inversion since the 70’s – a shocking piece of data. Risk appetite has been on the rise this year so far, and as we approach the halfway point of the year, how will markets gauge the rest of the year? With recession signs flashing, could we see risk aversion take place?
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