Peak ECB Rates
The euro sold off on a hawkish hike from the ECB this week and investors are rushing to sell the euro concluding that the ECB has now peaked at 4% for this hiking cycle. Slowing eurozone growth worries are seen to be capping ECB rate expectations and slowing UK data this week is also likely to weigh on the Bank of England decision next week. So, it looks like the ECB have reached its peak in rates and investors will want to know whether the Fed will follow suit next week and announce a peak for US rates. All eyes are on the Fed and BoE for next week.
Other key events from the past week
- * GBP: UK Wages slow drop, Sep 13: The number of unemployed people per vacancy was at 1.4 in May through to July, rising from 1.2 from February to April. Will these signs of a slowing UK labour market encourage further GBP selling?
- * GBP: UK GDP drop, Sep 13: For the first time since June 2020 all three sectors contributed negatively to UK GDP. More falls for the GBP ahead when the BoE meets next week? Is slowing growth going to slow down the path of BoE hikes?
- * ECB: Dovish Hike, Sep 14: The ECB hiked by 25 bps as expected, but the euro sold off as Christine Lagarde indicated that ‘key interest rates have reached levels that will make a substantial contribution to the timely return of inflation’. Markets read this as the ECB reached a peak in rates and sold the euro.
Key events for the coming week
- * USD: US Interest rate decision, Sep 20: A latest Reuters poll says 94 out of 97 economists expect the Fed to keep rates unchanged next week. Recent speculation from a tweet by Wall Street watcher, Timiraos, has markets wondering if the Fed is about to take a dovish change of direction. Watch for USD volatility.
- * Seasonal Insights: More falls ahead for the GBPJPY?
- * GBP: UK Interest Rate Decision, Sep 21: Short-term interest rate markets are currently pricing in only a 24% chance of the BoE staying on hold with rates next week. Expectations are firmly set for another 25bps hike. However, will the BoE surprise markets with a dovish decision?
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