Daily Market Update 25/05/2023

Key Points:

•            UK core inflation hits 30-year high

•            Germany enters into a recession

•            USD rises to 2-month highs


Yesterday’s hot inflation numbers from the UK, whilst forcing the peak of UK interest rates higher up to 5.5%, failed to keep GBP at elevated levels following the immediate announcement of the data. One interpretation of price action could be the idea that higher inflation leading to potentially higher interest rates could ultimately force the UK into a recession. Another interpretation could be the fact that we have one more inflation reading on the 21st of June before the BoE meeting on the 22nd June, and markets may not rush to get ahead of themselves to push GBP higher.

Bank of England Governor Bailey said inflation has “turned the corner” despite soaring food prices, but warned the Bank has “very big lessons to learn” over its failure to forecast rising inflation.

Germany’s IFO index came in lower than expected for the first time in six months, illustrating that the confidence seen at the start of the year seems be dwindling. This continues the theme of weaker than forecast German data.

The USD continued its trend higher with the USD index making 2-month highs, taking GBPUSD to a new 5-week low, and EURUSD to the lowest since 24th March. Fed rate cut expectations continue to reduce in the markets, adding demand for USD.

NZD was the biggest loser yesterday out of the G10 after the RBNZ signalled that they are at the end of the tightening cycle.


The US debt ceiling saga continues with news out overnight that credit ratings agency Fitch has put the US AAA rating on negative watch for a possible downgrade. The debt talks are set to continue with Treasury Secretary Janet Yellen once again warning the US Government will run out of cash by early June.

Paradoxically the dollar has benefited thus far from fears of a US default as safe-haven flows have helped support the currency.

Despite markets still aggressively pricing in US rate cuts for the 2nd half of this year, last night’s Fed minutes revealed whilst many members are leaning to a rate hike pause in June, many favours continuing hikes from July as inflation remains stubbornly high. Adding to this, Fed member Bostic warned interest rates may not start to fall until next year.

German Q1 GDP data released this morning came in below market forecasts at -0.3%, meaning the economic powerhouse of Europe has now entered a technical recession. 

Sterling is caught between higher yields supporting the currency, and increasing fears of higher interest rates for longer will cause the UK economy to also enter a recession later this year. Tomorrow we will get the latest read on the UK consumers when retail sales data for April is released, which is expected to show a fall of 2.8% in April.

Today’s US GDP release will be closely watched by market participants ahead of tomorrow’s key PCE (Fed’s preferred measure of inflation) data release.

Equals Market Analysis– 25th May 2023

Today’s Market Rates

Today’s Interbank Rates at 09:36 am against GBP movement.

GBP>EUR – 1.1525

GBP>USD – 1.2365

EUR>USD – 1.0734

GBP>CAD – 1.6809

GBP>AUD – 1.8930

GBP>SEK – 13.305

GBP>AED – 4.5429

GBP>HKD – 9.6880

GBP>ZAR – 23.875

GBP>CHF – 1.1194

Today’s Speeches

•    EUR – ECB De Guindos, Nagel, Cos, Centeno

•    GBP – BoE Haskel

•    USD – Fed Barkin, Colins


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