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Weekly Market Preview
Monday, July 15 2024
Last week, ten-year US bond yields and the US dollar index declined following a drop in June’s US consumer price index levels. The year-over-year CPI headline decreased from 3.3% in May to 3%, while the core CPI fell from 3.4% to 3.3%. This data suggests that the Federal Reserve might reduce interest rates by 25 basis points at the September meeting, increasing the likelihood of three rate cuts this year instead of just two, with a more than 60% chance of a cut in November.
This week, traders are focusing on the UK economic data release (inflation and wage levels) to predict the upcoming Bank of England’s monetary policy. The central bank is expected to cut interest rates by 25 basis points at its August meeting. These data could help traders anticipate the Bank’s future policy, with markets currently expecting two rate cuts this year. A decrease in inflation and wage rates might prompt traders to price in a third cut this year, which could negatively impact the pound sterling’s value against major currencies. Notably, the British pound reached its highest level in nearly a year against the US dollar last week, bolstered by political stability following the Labour Party’s substantial majority in recent elections.
Markets are also awaiting the European Central Bank’s interest rate decision, which is expected to maintain current rates after a 25-basis point reduction in June. The ECB may slow its pace in returning rates to neutral levels due to some board members’ indications that high European interest rates are necessary this year. The markets foresee another two rate cuts this year by the ECB: one in September and another in December. Investors will gain further insight into the ECB’s monetary policy from President Christine Lagarde’s press conference, which may emphasise the bank’s reliance on economic data for future policy decisions.
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