Yields on government bonds soared to their highest levels since 2008 led by US treasuries as data continues to support the resilient US economy narrative. Real rates in the US continued to climb higher to 1.96%, adding to gains on USD and following the higher wage numbers from the UK earlier this week, money markets continued to bet on a higher peak in UK interest rates causing GBP to gain as well.
* Daily move - against G10 rates at 7:30am, 18.08.23
** Indicative rates - interbank rates at 7:30am, 18.08.23
Earlier this week data showed that average wages in the 3 months leading up to July came in higher than expected but this morning’s retail sales showed that the extra cash is not being spent in shops, in July at least. Sales ex-fuels dropped 1.2% vs an expected fall of 0.6%, indicating that consumers are buckling down amidst soaring prices and interest rates. GBP is lower across the board as a result.
Final readings of inflation from Europe are due today at 10.00am which will be the focus for the day.
July’s retail sales data from the UK gives an indication as to the mindset of consumers and looking at 2-year fixed mortgage rates, you can see why people are unwilling to dip into their pockets. Yields on gilts declined in July and the average 2 fixed mortgage rate was 6.26% (highest since 2008). Yields have begun to climb again so far this month and given markets have repriced peak interest rates in the UK back to 6%, we could see further upward pressure on mortgage rates and thus further pressure on households.
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