Rates Steady as Investors Anticipate Upcoming Political Elections
GBP
GBP/USD is currently trading at 1.2668 (interbank), while GBP/EUR stands at 1.1841 (interbank).
The Pound Sterling continues to show strength against several counterparts amid concerns over diverging monetary policies sparked by robust wage growth in the United Kingdom. High wage increases have sustained inflation in the service sector, making interest rate cuts inappropriate at present.
Although headline inflation has stabilised at the desired 2%, policymakers are closely monitoring service sector inflation, aiming for sustained declines to justify potential rate cuts in the coming months.
Market expectations point towards the Bank of England initiating rate cuts starting from their August meeting. Political uncertainties in the UK are also expected to keep the Pound Sterling volatile, particularly with the upcoming parliamentary elections where the Labour Party is perceived to have an advantage over the Conservative Party in the initial round next Thursday.
No significant events are scheduled for today
EUR
EUR/USD is presently trading at 1.0700 (interbank).
This morning, German consumer confidence is anticipated to dip slightly in July, halting a four-month upward trend. The GfK consumer sentiment index unexpectedly decreased to -21.8 for July, down from a revised -21.0 in June, reflecting ongoing economic uncertainties.
Political uncertainty looms as France gears up for its first round of snap legislative elections this Sunday. Candidates must secure over 50% of the vote to win outright, with those garnering at least 12.5% advancing to a final round on July 7th. The Euro faces potential risks should the left-wing New Popular Front gain ground in subsequent rounds, given their expansive spending proposals that could necessitate increased borrowing and unsettle bond markets.
The RN leads in polls with 37% of the vote, ahead of the New Popular Front (29%) and Emmanuel Macron's Ensemble (21%).
Today’s Events (GMT):
07:00 - GfK German Consumer Climate (Jul) – Actual: -21.8 vs Forecast: -19.4
11:40 - ECB's Lane Speaks
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USD
The dollar index, which measures the currency against a basket of other major currencies, remains stable at 105.66. Yesterday, Federal Reserve Governor Michelle Bowman reiterated support for maintaining the current policy framework for an extended period to manage inflationary pressures. She indicated openness to further rate hikes if inflationary trends fail to abate. When asked about the possibility of rate cuts, Bowman stated that she does not foresee any this year.
Today, the US will release the latest results from its Bank Stress Tests, expected to confirm the resilience of the banking system under severe economic scenarios. The stress tests simulate conditions where the US unemployment rate rises to 10% over a two-year period, accompanied by heightened market volatility, a 36% decline in housing prices, and a 40% drop in commercial real estate values.
According to the CME FedWatch tool, markets are currently pricing in a total of 47 basis points in rate cuts this year, with a 66% probability of a cut in September.
Today’s Events (GMT):
21:30 - Fed Bank Stress Test Results
CAD
USD/CAD is currently trading at 1.3668 (interbank).
Yesterday, consumer prices in Canada unexpectedly rose in May after showing signs of consistent cooling since the beginning of the year. This unexpected increase has led markets to revise down expectations of a rate cut in July to below 50%.
The annual inflation rate accelerated to 2.9% in May from 2.7% in the previous month, while key measures of core inflation, closely monitored by the Bank of Canada, edged up to 1.8%, marking the first increase in five months.
Money markets have significantly reduced their bets on a July rate cut, now indicating a 45% probability, down from over 70% earlier in the week. The recent quarter-point cut by the Bank of Canada, coupled with rising inflation, has raised concerns that the central bank may have initiated rate cuts prematurely.
Meanwhile, Brent crude oil has risen slightly by 0.1% to $85.24 per barrel, while West Texas Intermediate (WTI) is currently trading at $81.08 per barrel.
Today’s Events (GMT): 13:30 - Wholesale Sales – Forecast: 2.4%
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