tend to be maintained, as the data on both the production and the demand side of the US economy seem to suggest a possible slowdown of economic activity.<\/p>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-76.png\")
<\/figure>\n\n\n\nGBP \u2013 BoE to hike rates<\/h2>\n\n\n\n
The pound is about to end the week in the greens against the USD and JPY yet is losing ground against the EUR. In the coming week, we expect the highlight for pound traders to be BoE\u2019s interest rate decision on Thursday. The bank is expected to hike rates by 25 basis points and currently, GBP OIS imply a probability of 83.40% for such a scenario to materialise, with the rest implying that a 50 basis points rate hike is also possible yet a remote scenario. Furthermore, please note the market\u2019s expectations for more rate hikes to come from BoE before the year\u2019s end. The hawkish intentions of the bank are understandable in the sense that despite the bank\u2019s Monetary policy tightening, inflation has not eased as much as in other economies such as the US and the Eurozone. Even in May when a sharp drop in inflation was expected, the slowdown was material yet less than the market\u2019s expectations on a year-on-year level and still above 8%, which is four times the bank\u2019s inflation target rate. We expect the bank to deliver the 25 basis points rate hike and maintain a hawkish approach, despite some Monetary Policy Committee members disagreeing, anything less than that could asymmetrically weaken the pound. On a macroeconomic level, we note that June\u2019s CPI rates are to be released ahead of BoE\u2019s interest rate decision and could alter the market\u2019s expectations about BoE\u2019s rate hiking path, especially if the rates slow down considerably. Furthermore, we highlight the tightness of the UK employment market for April, as the unemployment rate dropped and the employment change figure rose unexpectedly, allowing for more leeway for the bank to tighten its monetary policy. April\u2019s GDP rate accelerated implying a faster expansion of the UK economy, adding to the positive sentiment of pound traders.<\/p>\n\n\n\n JPY is about to end the week weaker against the USD, EUR and GBP in a sign of a broader weakness of the Japanese currency. We should note on a monetary level, that BoJ remained on hold at -0.10% as was widely expected, keeping its ultra-loose monetary policy settings in place. Overall, the monetary policy outlook differentials that BoJ has with other central banks tend to widen and thus weigh on JPY and we expect that tendency to be maintained as long as the bank keeps its dovish stance and others tighten their policy. Given the bank\u2019s efforts to maintain inflation near the 2% target, we highlight on a macroeconomic level the release of the June CPI rates near the end of next week. For the time being, we note that prices at a producer\u2019s level declined more than expected into the negatives for May in a prelude for what to expect from the nationwide CPI rates for the same month. Another issue that tends to intensify our worries is the widening of April\u2019s trade deficit in May, implying that the Japanese economy suffered even more outflows from its international trading activities. On the flip side, we note the acceleration of the machinery orders growth rate which got out of the negatives for April, implying a greater degree of confidence of businesses to actually invest in the Japanese economy. On a fiscal level, we note the unveiling of the Japanese government\u2019s new childcare plan, an issue we had mentioned in last week\u2019s report as well, yet on the flip side, we also note the possibility of a tax hike. The latter issue may be pushed back as there are wide rumors for possible elections which may endanger the political stability achieved under Kishida. Furthermore, we note for JPY traders the statements made by Japan\u2019s Finance Minister Suzuki, that excessive volatility is undesirable, allowing for a hint that the Japanese government may intervene in the markets once again, should JPY weaken considerably.<\/p>\n\n\n\n The EUR is about to end the week stronger against the USD, JPY and GBP in a sign of a broader strength for the common currency. On a monetary level, ECB\u2019s interest rate decision tended to provide additional support for the EUR, as the bank hiked rates as expected by 25 basis points and also signaled that more rate hikes lay ahead. It\u2019s characteristic that ECB President Christine Lagarde in her press conference that followed the release of the decision, reaffirmed that the bank is not at the end of its rate hiking cycle with another 25 basis points rate hike in the July meeting being probable. This was also the market\u2019s expectation and EUR traders seem not to have been disappointed. On a macroeconomic level, we note that Germany\u2019s and France\u2019s HICP slowdown shown in the preliminary release for May was confirmed. On the other hand, we also got some mixed signals from Germany\u2019s ZEW indicators for June as pessimism for the outlook of the largest economy in the Eurozone has been reduced while the conditions on the ground deteriorated substantially. It should be noted that the German economy is in a technical recession and may have been the one economy hit the most by European sanctions related to Russian natural gas. Furthermore, our worries extend to a Eurozone level, despite the acceleration of the industrial output growth rate for April, also given the further tightening of ECB\u2019s monetary policy. Yet given ECB\u2019s hawkish stance, our worries tend to extend to a possible slowdown of economic activity, especially for Germany\u2019s manufacturing sector and we expect the release of the preliminary June PMI figures to shed more light on the issue.<\/p>\n\n\n\n AUD is about to end the week in the greens against the USD for a third week in a row. On the monetary front, we note that the heat on a political level for RBA Governor Lowe is on, given the recent rate hikes of the bank. Borrowers seem to be in a dire situation as their loan installments continue to rise. Yet the bank\u2019s hawkish intentions may not be over just yet, as market expectations are for the bank to hike rates once again in the August meeting before pausing its rate-hiking path again. The recent data release, showing a hot Australian employment market for May, could have sharpened RBA\u2019s hawkishness once again. It\u2019s characteristic that the unemployment rate dropped to 3.6% while the employment change figure rose to almost 76k, both exceeding market expectations. Furthermore, it should be noted that June\u2019s consumer confidence seems to have improved which in turn may allow for an acceleration of the retail sales growth rate. On the other hand, Business confidence seems to have dropped and conditions on the ground for the Australian economy seem to have deteriorated in May. Yet at this point and given the close Sino-Australian economic ties, we note our worries for the rebound of the Chinese economy. Evidently May\u2019s industrial output growth rate slowed down beyond market expectations as also did the urban investment and the retail sales growth rates for the same month. The Chinese data tend to highlight an easing in economic activity both on the production as well as on the demand side of China\u2019s economy, which in turn could weigh on the Aussie. Overall, given the low number of high-impact financial releases from Australia in the coming week we may see fundamentals leading the way for the Aussie.<\/p>\n\n\n\n The Loonie seems to be edging higher against the USD, as the week draws to a close. On the monetary front, market expectations are for the BoC to hike rates once again in its mid-July meeting, a scenario that may be providing some support to the Loonie, especially should market expectations be enhanced by opinions expressed by BoC policymakers next week. Yet on the other hand, we have to note that the worse-than-expected employment data for May, may have shaken some Loonie traders as the employment change figure dropped into the negatives and the unemployment rate rose to 5.2%, both implying a crack in the tightness of the Canadian employment market. Furthermore, the wide drop of the number of House Starts can be perceived as another symptom of BoC\u2019s monetary policy tightening, while the softening of the manufacturing sale growth rate may be perceived as another bad omen for the Canadian economy in April. On a more fundamental level, we note the sensitivity of the CAD as a commodity currency, given its riskier nature to the market\u2019s mood swings. Should the market sentiment turn more risk-averse we may see the CAD losing ground and vice versa. Finally, oil prices failed to provide any substantial bearing on the course of the Loonie given that they remained relatively stable, maybe even edged a bit lower for the week. Fundamentals surrounding the oil market seem to revolve around the possibility of China slowing down its growth and having an adverse effect on the demand side of the commodity and on the other hand the announced production cuts by Saudi Arabia countering the market worries. Overall, we expect that should oil prices start declining in the coming week, we may see them having an adverse effect on the Loonie as well, given that Canada is a major oil-producing economy.<\/p>\n\n\n\n The coming week is to bring an end to the chorus of central banks\u2019 interest rate decisions. We expect the USD to relent some of the initiative over other currencies as the frequency and gravity of US financial releases tends to ease and for the time being no major fundamental issues are in play from the US. Such a scenario, may allow other currencies to take the opportunity and navigate through the markets in a more independent fashion, creating a more balanced blend of trading opportunities. As a closure, we would like to make a small comment about some interest rate decisions due out. We make a start with Norway\u2019s Norgesbank on Thursday and we expect the bank to hike rates by 25 basis points. Should such a decision be also accompanied by a forward guidance signaling another rate hike to come, we may see the NOK getting some support. On the same day, expectations are running high for Switzerland\u2019s SNB as it is expected by the market to deliver a 50 basis points rate hike, a scenario that could provide some support for the CHF. We note that the CPI rate slowed down to 2.2% yoy for May nearing the bank\u2019s target inflation rate of <2.0%, which may ease the hawkishness of the bank. Last but not least, we would also like to note from Turkey CBT\u2019s interest rate decision on the same day and the bank is expected to remain on hold at 8.5%. It should be noted that the Lira managed to stabilise somewhat against the USD as the market maintains a wait-and-see position for the new Governor of the Bank, Hafize Gaye Erkan. She is considered to be a guarantee of the Turkish Government\u2019s commitment to the markets, for a more economically orthodox approach in regards to the bank\u2019s monetary policy approach, something that the markets do not seem to buy currently but a strong rate hike could alter that perception.<\/p>\n\n\n\n![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-77.png\")
<\/figure>\n\n\n\nJPY \u2013 BoJ remains on hold<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-78.png\")
<\/figure>\n\n\n\nEUR \u2013 ECB hiked rates and pressed on<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-79.png\")
<\/figure>\n\n\n\nAUD \u2013 Positive data and worries for China<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-80.png\")
<\/figure>\n\n\n\nCAD \u2013 Canada\u2019s retail sales in focus<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-81.png\")
<\/figure>\n\n\n\nGeneral Comment<\/h2>\n\n\n\n