Similar to Thursday's price action and market news, US data points shaved off further rate cut expectations by the Fed for this year. 2-year treasury yields continued to rise, and the probability of a 0.25% rate hike in June rose to 60% after core PCE inflation came in higher than expected at 0.4% month-on-month, and 4.4% year-on-year. The USD index finished higher for the third consecutive week, now at the highest since 16th March.
Over the weekend, the Republicans and the White House agreed in-principle to suspend the debt ceiling until 2025. The deal will now need to win approval in Congress.
* Daily move - against G10 rates at 8:00am, 30.05.23
** Indicative rates - interbank rates at 8:00am, 30.05.23
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On the data front, this week's focus will fall on inflation numbers from the eurozone, as well as US job numbers. Core inflation from the eurozone is expected to ease to 5.5% in May, with headline inflation expected to drop to 6.3%. The EUR has been weak in recent weeks as market expectations of higher interest rates have eased, thus should inflation numbers come in weaker then expect a weaker EUR trend to continue.
US job numbers are out this week in the form of ADP payrolls, JOLTS, and nonfarm payrolls at the end of the week. Over the last three weeks, markets have steadily eased rate cut expectations by the Fed across this year (from 0.9% to 0.08% worth of rate cuts) which has supported USD. So anything to indicate a stronger than expected job markets would likely add to USD gains.
And of course we will wait to see if Congress will approve the US debt deal...
In the UK, markets continue to aggressively price higher interest rates by the BoE with at least 1% of additional hikes priced in before year-end. However, price action on GBP pairs hasn’t matched with no new highs recognised. This can be easily recognised on the GBP index below. Perhaps we are near peak GBP highs?
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