GBP continues to be the best performing currency in the G10, with the GBP index now at 13-month highs. Notably GBPUSD is at 14-month highs and GBPEUR at 6-month highs. House price data from Rightmove in June continued to decline, with year-on-year house price growth down to 1.1%, versus 1.5% growth expected - this is the lowest since December 2019.
The USD index suffered its worst weekly performance in January, despite a hawkish pause by the Fed and US treasury yields being at the highest levels since March – back in March the USD index was approximately 2.5% higher than current levels.
EU inflation on Friday fell in line with expectations coming in at 6.1%, and core CPI came in at 5.3%.
* Daily move - against G10 rates at 5:00pm, 18.06.23
** Indicative rates - interbank rates at 5:00pm, 18.06.23
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A quiet start to the week with the US on public holiday and no meaningful data for the rest of the day. It will be a crucial week for GBP with inflation numbers due out on Wednesday, and the BoE interest rate decision on Thursday. The CPI print is expected to show inflation eased to 8.4% in May from 8.7% in April, with the core CPI number expected to remain at 6.8%. Last month's inflation numbers showed that prices did not ease as much as expected, and should we get a similar scenario on Wednesday, GBP could well continue to gain. The BoE is widely expected to increase rates by another 0.25%, taking the base rate to 4.75%, and as ever we wait to see what guidance the Bank give for further hikes, remembering the markets continue to price in peak rates at 5.75% later this year.
Over this week we have plenty of Fed speak as well, with Fed Powell in the spotlight on Wednesday as he sets out to deliver the Fed’s semi-annual monetary policy report to the House.
The week finishes with June's services and manufacturing PMIs out from the UK, EU, and the US.
GBP continues its grind higher, with the index now at 13-month highs as interest rate differential and yields on gilts continuing to work in the currency's favour. Big week for the currency with May's inflation numbers, and the BoE set to hike by another 0.25%. Until we see signs of inflation cooling quicker than expected, markets will continue to price in higher interest rate expectations by the BoE, which ultimately will continue to support GBP.
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