The week started quietly with the Federal Reserve meeting being the main focus. US CPI data out the day before the Fed meeting shows US inflation heading in the right direction which was in contrast to the growing inflationary pressures in the UK’s labour market. This puts extra pressure on the BoE meeting next week. Markets expected the Fed to pause rates on Wednesday and it duly obliged, but gave the meeting a hawkish tilt by raising the dot plot. However, really the Fed has just moved to a data-dependent stance and that should give the Fed more flexibility on rates moving forward. Will the ‘skip’ in rates, become a ‘pause’ in rates?
Other key events from the past week
- * GBP: Inflationary forces, June 13: UK labour data came in more inflationary than forecast this week & unemployment also fell unexpectedly to 3.8%, down from 4% expected. Markets now see five more rate hikes to come from the BoE.
- * USD: Inflation drops, June 13: US President Biden said that Tuesday’s inflation data is good news for US working families as headline inflation drops to 4% y/y from 4.1% y/y expected and 4.9% y/y prior. Will the drop in inflation continue?
- * USD: US interest rate decision, June 14: Fed’s Powell managed to keep the Fed’s options open with the dot plot being raised, but rates were not increased. This gives the Fed options to not hike rates further if labor and inflation data move lower between now and the next Fed meeting.
Key events for the coming week
- * GBP: UK Inflation data, June 21: UK inflation data will be crucial this week for the BoE’s rate decision on Thursday. If the core reading comes in higher than 6.3% then this will likely lift the GBP and increase expectations for a 50bps hike.
- * Seasonal Insights: Johnson & Johnson heads into a strong summer seasonal pattern.
- * GBP: BoE Interest rate decision, June 22: The Bank of England is desperately trying to tackle sticky UK inflation. With HSBC removing some mortgages from the market last week expect a keen market focus on the decision and watch for GBP volatility.
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