ECB raises rates, US economy softens and the Pound rallies

One-liner: UK inflation is expected to be stickier than peers, while the ECB signals the likelihood of additional rate rises, and the US starts to show signs of an easing economy.

📰 What’s moving markets?

• The ECB raised rates by 0.25% to 3.5% on Thursday (the highest level since 2001) and signaled that they are likely to engage in addition rate hikes for the second half of the year. EURUSD rallied to $1.09 as a result.

• Economic data suggests that the Fed’s monetary policy is working: US jobless claims reached 262,000, the highest level since October 2021, implying that the jobs market is started to soften as a result of rate hikes. US retail sales also climbed unexpectedly by 0.3% in May. The market is now pricing only a 67% chance that the Fed raises rates by 25bps next month. US equity markets surged 1.2% on the news.

• GBPUSD has risen to the highest levels in the last 14 months, now trading at $1.28. This is the result of the market repricing UK base rate outlooks, with expectations now that UK interest rates will reach 5.71% by the end of the year due to persistent inflation.

• Microsoft rallied 3.2% yesterday, reaching a record market capitalization of $2.59 trillion. The stock was spurred by optimism around AI and their large ownership of OpenAI, the creator of the popular LLM, ChatGPT.

📊 Chart of the day

GBPUSD is up 6% year-to-date.

📅 Coming up this week

Monday 12th June

• India CPI expected: 4.42%, last: 4.70%, actual: 4.25%

Tuesday 13th June

• UK Average Earnings ex Bonus expected: 6.9%, last: 6.7%, actual: 7.2%

• German CPI expected: 6.1%, last: 6.1%, actual: 6.1%

• US CPI (core) expected: 5.3%, last: 5.5%, actual: 5.3%.

Wednesday 14th June

• UK GDP expected: 0.3%, last: -0.3%, actual: 0.2%

• US PPI (core) expected: 2.9%, last: 3.2%, actual: 2.8%

• US Fed Interest Rate Decision expected: 5.25%, last: 5.25%, actual: 5.25%

• Australia Unemployment Rate expected: 3.7%, last: 3.7%, actual: 3.6%

• China Retail Sales expected: 13.9%, last: 18.4%. actual: 12.7%

Thursday 15th June

• Russia GDP (quarterly) expected: -1.9%, last: -2.7%

Friday 16th June

• Euro Zone CPI (core) expected: 5.3%, last: 5.3%

• Euro Zone wages expected: 3.3%, last: 5.1%

• Japan BoJ Interest Rate Decision expected: -0.1%, last: -0.1%

📈 The markets at a glance