Data from Germany continued to add to the narrative that perhaps the outlook in Europe is deteriorating. The IFO index, Germany's most prominent leading indicator, fell for the second consecutive month to 88.5 in June, much lower than 91.7 in May. Hope for a rebound in the German economy looks to have been dashed before it actually began. The importance of the health of the German economy with respect to the rest of the Europe cannot be underestimated, and further declines in the outlook for Germany will likely weigh on the EUR.
This morning the British Retail Consortium announced that UK shop price inflation declined at its fastest pace since the end of 2021, with price growth now at 8.4% in June, down from 9% in May – welcome news for households.
* Daily move - against G10 rates at 7:30am, 27.06.23
** Indicative rates - interbank rates at 7:30am, 27.06.23
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Following on from the recent hawkish turn by the Bank of Canada, focus today will fall on May's inflation numbers to see if indeed inflationary pressures are persisting in Canada. Markets currently expect approximately an additional 0.25% worth of rate hikes by the end of the year, so any upshoot on today's numbers could add to this. GBPCAD remains near respective highs given the differential in rate expectations between the UK and Canada, but an upshoot on Canada’s expectations should reduce this differential and cause GBPCAD to weaken.
An upshoot on US consumer confidence numbers will reduce the chances of slower growth in the US, and allow the Fed to stick to their hawkish stance on monetary policy.
This week's focus turns back onto the reality of inflation, with four sets of data in focus from the G10. Canada kicks off proceedings with the release of its figures for May. Recently the Bank of Canada turned hawkish and hiked interest rates, citing inflationary pressures persisting within the economy, as did the Reserve Bank of Australia whose countries inflation numbers will be released in the early hours of tomorrow morning. Analysts are expecting easing of prices from both countries, so it will be interesting to see whether data over the next 24 hours supports calls from both central banks.
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