Insights

Treasury Market Commentary

posted 06 Jun 2022 2 mins

Central Banks Hike Again

Last week saw another central bank hike its rates. The Bank of Canada, which increased its overnight lending rate by 0.50% in May, announced a further 0.50% rise, taking the benchmark rate to 1.50%. What’s more, in a speech to the Gatineau Chamber of Commerce the day after the announcement, deputy governor Paul Beaudry suggested rates may have to double to defeat inflation.

Inflation continues to be the dominant force directing central-bank policy decisions. This week the Reserve Bank of Australia (RBA) and the European Central Bank (ECB) will follow other policymakers around the world and take a more a hawkish stance.

The RBA is expected to raise rates by 0.25% at its meeting on Tuesday, but there is growing speculation that it may opt for a 0.40% hike, taking the cash rate to 0.75%, its pre-pandemic level.

The ECB, while not expected to move the deposit rate from -0.50% at Thursday’s meeting, is set to deliver a more hawkish message by signalling an end to its quantitative easing (QE) programme and indicating the need to hike rates at its July meeting.

In the US, employment data released on Friday continued to paint a buoyant picture. Markets had expected to see 325k jobs created in May, but the actual number was better at 390k. Attention now turns to this week’s inflation print in advance of next week’s meeting.

Data in the UK was light last week with Jubilee bank holidays halting trading on Thursday and Friday, but there were two releases worth noting. First, the Lloyds business barometer, which measures business confidence, improved by 5% to 38% (its highest since February). Second, consumer credit came in ahead of expectations with a £1.4bn rise (consensus £1.2bn). Inflation risks remain elevated, but businesses and consumers appear to be weathering the storm for now.

GBP/USD 1 Year
Graph

Currencies

Pair Last 12-month high 12-month low
GBP/EUR   1.1678 1.2191 1.1534
GBP/USD    1.2534 1.419 1.2156
GBP/CHF  1.2055 1.2857 1.1918
EUR/USD 1.0733 1.2218 1.035
GBP/AUD  1.7391 1.9222 1.7175
GBP/ZAR 19.3862 21.7684 18.7678
GBP/CAD 1.5758 1.7627 1.5712
GBP/SEK 12.2173 13.2423 11.5275
GBP/NOK 11.792 12.4205 11.2461
GBP/INR 97.3586 104.0964 94.2993

Economic data

Date Release Last Exp
07/06/22 AU RBA Rate Decision 0.35% 0.60%
08/06/22 EZ GDP YY (Q1) 4.7% 5.1%
08/06/22 EZ Employment Change YY (Q1) 2.1% 2.6%
09/06/22 EZ ECB Deposit Rate -0.50% -0.50%
10/06/22 US CPI YY (May) 8.3% 8.3%
10/06/22 US Core Inflation Rate YY (May) 6.2% 5.9%