![]() ![]() It adds “In December, the ECB will reveal a new set of forecasts, including for 2026, and if inflation and the labour market has not cooled by then we see the risk for a further 25bp hike in December or in Q1 next year.”Īccording to ING “we think EUR/GBP probably put in an important low near 0.8500 earlier this month (1.1765 peak for GBP/EUR) and that corporates will now use any EUR/GBP dip below 0.8600 (GBP/EUR rally to 1.1630) to increase hedges on sterling receivables.” We expect that the ECB will pause thereafter but, the recent market rally notwithstanding, see the risks to this as skewed to the upside.” RBC Capital Markets expects the bank will maintain a hawkish stance “Our expectations remain for a final 25bp hike in September for a terminal rate of 4.0%. Still, media reports that Governing Council members are planning to soften their tone on forward guidance as they hike by 25bp next week suggests – as also hinted in recent remarks – that concerns on inflation may have eased slightly.” ![]() There are, however, fresh doubts whether the ECB will continue to increase rates beyond July with more dovish voices on the committee gradually gaining strength.ĮCB council member Stournas, for example, stated that inflation is falling and more tightening could hurt the economy.Īccording to ING “the eurozone final core inflation printed 5.5% versus the preliminary 5.4%. There are still very strong expectations that the ECB will increase interest rates by a further 25 basis points at the July meeting with the benchmark refi rate at 4.25%. Nomura noted that the XpertHR pay settlements data reported a mean annual increase of 6.7%, little changed over the last three months.Īccording to the bank “These figures are still far too strong for the MPC’s liking, again highlighting the upside risks to our 25bp call for next month’s BoE meeting.” The Bank of England has reiterated that wages growth is still too high and needs to moderate. In other words, the choice between a 25bp and a 50bp could turn out to be a finely balanced one. HSBC added “It’s possible that, after a ‘better behaved’ inflation print, the impetus on the MPC to keep raising rates aggressively will wane. The overall situation, however, is still finely balanced, especially with uncertainty over the economic outlook. And third, labour cost pressures remain intense with annual wage growth running above 7%.” Second, core inflation momentum is still running above its long-run average. HSBC still expects that the Bank of England would have to stay hawkish “First, we’ve been here before – downside surprises at the start of this year unwound with a vengeance with the onset of spring. Markets also now consider that a further 50 basis-point hike at the August meeting is less likely. The data triggered a re-pricing of BoE expectations with rates now expected to peak around 5.75%. The core rate also declined to 6.9% from 7.1% and below expectations of 7.1%. ![]() The latest inflation data recorded a decline in the headline rate to 7.9% from 8.7% and below expectations of 8.2%. This combination triggered a surge in expectations surrounding bank of England rates with markets at one point expecting rates to peak at least at 6.00% and possibly 6.50%. The Bank of England also increased interest rates by 50 basis points to 5.00% at the June policy meeting. The data during much of the last few months has generally pointed to stronger-than-expected inflation pressures in the UK economy.Īhead of the latest data, the previous four inflation reports were all stronger than expected and wages growth also increased further. Relative yield expectations for the Pound and Euro will remain key drivers for the pair with relative losses for either currency if there is shift in stance. GBP/EUR retreated further from 9-month highs above 1.1730 and plunged to 8-week lows fractionally below the 1.1500 level before a limited rally to 1.1525. The Pound-Euro posted sharp losses during the last week, primarily under the influence of weaker-than-expected UK inflation data for June. The Pound Sterling to Euro (GBP/EUR) exchange rate is expected to fall towards 1.1365 over the next twelve months according to two multinational banking and financial services institutions.įoreign exchange analysts at ING and Danske expect losses to reach these levels, however, Rabobank forecasts an even lower exchange rate of 1.11 over the same timeframe. ![]()
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