Bank of England Raises Interest Rates by 25 Bps
AUD
The Aussie Dollar has had a mixed session losing the majority of yesterday’s gains against most majors, with the AUDUSD pair being the only major exception. As interest rates go up around the world, Equities were largely in the red with the Nikkei outperforming its regional peers up +0.4% while the ASX fell -0.2% with the worst performer being the Shanghai Comp down -0.6%. In Commodities Gold rose +0.3%, while Iron Ore fell -3.1%. On the Macro-economic colander yesterday, we saw Australia’s employment figures were better than expected. The Aussie economy added 61K new jobs to the economy, more than the 25K estimated, and the Unemployment rate held steadily around 3.9%, but falling just short of the expected drop to 3.8%. Looking ahead it will be light-on in terms of any significant market data for the day.
USD
The Aussie Dollar marches firmly above the 0.7 handle against the greenback amid a number of poor US data releases overnight, currently trading at 0.7048 at time of writing. US Equities were in the red as Wall Street fell sharply overnight with the NASDAQ the worst performer down -4.0%, while the S&P 500 and the Dow Jones closed -3.1%, and -2.4% respectively. The yield on 10-year US Treasuries progressed 10bps to 3.39%, while the DXY reflects the weakening USD falling to 103.80 a point and a half lower after peeling off from historic high in the 105.0 range. US data as mentioned was generally weak with the Philly Fed Business Survey for June printing at -3.3, down from +2.6 and well below expectations of +5.1 and a previous of 2.6. Weekly jobless data was also soft marginally missing expectations with a print of 229K unemployment claims, 14k more than the expected 215k and 3k lower than previous of 232k. May Building Permits and Housing Starts were both also worse than expectations. Looking ahead, tonight we will have the FED’s Chair Powell hitting the wires at the Inaugural Conference on the topic of International Roles of the US Dollar, followed by the Capacity Utilization Rate, Industrial Production m/m data and CB Leading Index m/m release.
EUR
The Aussie has weakened against the Euro falling to a low of 0.6628 before finding support and bouncing back to 0.6679 at time of writing. European Equities opened in the red, heading for 16-month lows, with Eurostoxx 50 and the DAX down -3.3%. ECB’s De Guindos hit the wires at the Eurogroup Meetings stating that the ECB is determined to tackle fragmentation. He later continued saying he is concerned with rising inflation expectations, adding that inflation may be more entrenched than initially thought. He said, fragmentation goes beyond sovereign spreads, affecting household loans. He sees yields stabilising as inflation slows in Medium term. Villeroy also took the stand stating the ECB will raise rates in a gradual, sustained manner, adding that the ECB has the will and capacity to bring inflation to 2%. While the ECB's President Lagarde said that the ECB’s new anti-crisis tool will kick in if the borrowing costs for weaker nations rise too far or too fast, Lagarde explained to ministers that the new mechanism that central bank officials are devising is intended to prevent irrational market movements from putting pressure on individual euro nations as ECB embarks on its first interest-rate hikes in more than a decade. On macro-economic data, the German 5-year yield jumped 20bps, set for biggest gain since 2011. To the eastern borders Russia’s chief negotiator said Russia is ready for peace talks with Ukraine but has yet to receive a response to its proposals from Kyiv. Looking ahead tonight we will see the print of the Final CPI y/y, Final Core CPI y/y both expected to come in at par, followed by the Italian Trade Balance and the ECOFIN Meetings.
GBP
The Aussie has fallen significantly against the Pound over the last 24 hours, the pair plummeting to 0.5662, amid the BOE rate hike decision at 9pm last night where it eventually found support retracing somewhat to currently be trading at 0.5708 at time of writing. UK Equities were heavily down with the FTSE losing -3.1%. The results of the MPC Official Bank Rate Votes were 6 officials voting in favor of a 25bps rate rise, while 3 voted for 50 bps, with the doves winning out, meaning the BOE raised the interest rate by 25bps to 1.25% meeting market expectations as it tries to contain growing inflation while managing slowing growth. Today we will see MPC Member Tenreyro hit the wires to speak at the Household Finance and Housing Workshop hosted by the Bank of England and Imperial College Business School, in London. This will later be followed by the BOE Quarterly Bulletin at 9pm tonight.
NZD
Similarly with other major peers, the Aussie fell against the NZD to a low of 1.1036 losing the ground it had made over the last two and a half days, now having rebounded somewhat to be trading at 1.1068 at time of writing. In what is the last piece of data from NZ for the week, the Business NZ Manufacturing Index printed at 52.9, above the previous of 51.2.