July’s University of Michigan consumer sentiment figures shot to the highest since September 2021, with the report suggesting consumers expect a low unemployment rate over the next year, and that their incomes should rise as much as inflation. USD finished higher on the day, but that was the only silver lining for a dire week for the greenback.
Data from China this morning showed that the economy expanded slower than expected at 6.3% against a 7.1% forecast. Retail sales came in lower at 3.7%, and property investment contracted further than expected. It will be interesting to see if this saps the risk appetite in the markets.
Rightmove house price data this morning showed house price growth is now at the lowest since November 2019, as the impact of higher interest rates continues to damage the property market.
* Daily move - against G10 rates at 7:30am, 17.07.23
** Indicative rates - interbank rates at 7:30am, 17.07.23
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Big week for the UK and GBP with the release of June’s inflation numbers on Wednesday. It's worth noting that the bar for the BoE to keep up with the markets expectations of favouring an additional 1.22% worth of interest rate hikes remains relatively high, so any signs that inflation may in fact be falling quicker than expected could favour a 0.25% hike in August, and thus mean more downside risk for GBP than upside risk.
Where next for USD? Analyst reports in recent days seem to suggest more weakness to come given the US disinflation narrative in the markets. Another important factor will be risk appetite in markets. China GDP numbers were disappointing this morning, so it will be interesting to see how this impacts the performance of equity markets today. The only notable data this week from the US is retail sales on Tuesday. and ahead of the Fed interest rate decision next week there will be no Fedspeak.
The EUR index continues to go from strength to strength ahead of final readings of inflation out on Wednesday. Interestingly headline inflation is expected to be revised lower to 5.5% from 6.1%, but as ever the core number will be key. Any downward revision could see unwinding of rate expectations, and thus cause the EUR to come off recent highs.
UK inflation will be key if whether the currency can hold onto the 15-month highs the GBP index currently trades at. Core inflation is still going to be key to determine whether the BoE will be able to keep up, with the markets expecting an additional 1.25% worth of rates hikes between now and February 2024, and thus whether the currency can stay near these relative highs.
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