Treasury Market Commentary

posted 01 Aug 2022 2 mins

BoE to tighten, talk of Recession in US

On Wednesday, the Federal Reserve (FED) raised interest rates by 0.75% to an upper bound of 2.50%. This is an increase of 2.25% from the start of the year. The FED confirmed its view that high inflation remains the biggest risk, but acknowledged recent signs of weakness in the US economy. FED chair Jerome Powell also pointed to the likelihood of further rises in September, with 0.50% or 0.75% hikes a possibility.

Following contraction in the US economy for a second successive quarter, talk of a ‘technical’ recession is gathering pace. Policymakers were quick to point out that weaknesses are not broad-based. According to Jerome Powell, the US labour market – a key economic indicator for the US – remains strong; the significance of recent rises in unemployment claims has been downplayed. Markets expect US rates will rise further, but less than they have done previously, perhaps causing the FED to change its stance next year. US bond yields are down 0.85% from the June peak.

GBP/USD 1 Year


This week’s key event is the BoE’s policy update on Thursday, when a sixth successive interest rate hike is expected. Markets are pricing in a 0.50% increase (this would bring the interest rate to 1.75% from 1.25%), while economists have forecast a more modest 0.25% hike.

The BoE’s forecast for UK Gross Domestic Product (GDP) growth in 2022 and 2023 is also likely to be downgraded: this is partly due to rising inflation and its effect on households’ spending power.

Sterling gained 1.38% versus the euro, closing the week at 1.1909, and closed up 1.37% versus the US dollar at 1.2166. On a year-to-date basis, the pound is down some 9% against the US dollar (it opened the year at 1.3530).  However, sterling’s year-to date performance against the euro remains broadly unchanged, as UK and eurozone economies battle inflation by raising interest rates. The risk remains, that further rate hikes may dampen growth.


Pair Last 12-month high 12-month low
GBP/EUR   1.1914 1.2191 1.1466
GBP/USD    1.2195 1.3958 1.1760
GBP/CHF  1.1587 1.2824 1.1525
EUR/USD 1.0236 1.1909 0.9952
GBP/AUD  1.7399 1.9222 1.7175
GBP/ZAR 20.1477 21.7684 18.7678
GBP/CAD 1.5594 1.7627 1.5352
GBP/SEK 12.3873 13.2423 11.5275
GBP/NOK 11.7806 12.4205 11.2461
GBP/INR 96.4859 104.0964 93.5973

Economic data

Date Release Last Exp
31/07/22 China Manufacturing PMI (Jul) 50.2 50.3
01/08/22 EZ Manufacturing PMI (Jul) 49.6 49.6
01/08/22 UK Manufacturing PMI (Jul) 52.2 52.2
01/08/22 US ISM Manufacturing Index 53.0 52.1
02/08/22 EZ Services PMI (Jul) 50.6 50.6
02/08/22 UK Services PMI (Jul) 53.3 53.3
02/08/22 US ISM Services Index (Jul) 55.3 53.9
04/08/22 UK BoE Rate (Aug) 1.25% 1.75%
05/08/22 US Unemployment rate (Jul) 3.6% 3.6%