![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-108.png\")
<\/figure>\n\n\n\nGBP \u2013 BoE hikes rates<\/h2>\n\n\n\n
The pound is about to end the week lower against the USD, higher against the JPY yet remains relatively unchanged against the EUR. On a monetary policy level, BoE took the markets by surprise hiking the interest rate by 50 basis points and raising it to 5.00%. In its accompanying statement, the bank cited \u201c indications of persistent inflationary pressures in the economy\u201d and \u201cthe tightness of labor market conditions\u201d. The market maintains the view of more rate hikes to come with the peak being set at 6.25% in 2024. Overall we expect the bank to maintain its hawkish stance and the market\u2019s expectations for more rate hikes to come to be maintained, which in turn may continue to provide support for the pound. On a macroeconomic level, the size of the hike was suspected by the markets and is understandable given that for May the headline CPI rate remained unchanged on a year-on-year level and the core CPI rate even accelerated, showcasing the persistent inflationary pressures in the UK economy. Yet on the other hand, further monetary policy tightening by the BoE may weigh on the economic outlook of the UK and slow down if not even cause a contraction of economic activity and growth. The situation was displayed by the deeper drop of UK\u2019s preliminary manufacturing PMI figure for June, showing an even wider contraction of economic activity in the sector. On the other hand, the services sector seems to be still holding on despite a slowdown of expansion of economic activity in June.<\/p>\n\n\n\n JPY seems to be edging lower against the USD, EUR and GBP in a sign of wider weakness. On a fiscal level, we note Japan Finance Minister Suzuki\u2019s comments that FX stability is important and that FX moves are closely watched. Despite this could constitute a slight market intervention with statements, we see the risk for a substantial market intervention currently as low. On a deeper fundamental level, we continue to highlight JPY\u2019s second nature as a safe haven and note that should we see a risk off market sentiment arising we may see the Japanese getting some support and vice versa. On a monetary level, we note that BoJ is expected to continue to be dovish despite April\u2019s meeting minutes showing that BoJ debated the possible risk of hiking interest rates too late. It\u2019s characteristic that BoJ board member Noguchi stated that wages must keep rising in order for the bank\u2019s inflation target of 2% to be reached. Yet at the same time implied that the ultra-loose monetary policy settings must remain in place to support the Japanese economy and that no operational tweaks to the bank\u2019s yield curve control were required for the time being. BoJ seems to be justified on a macroeconomic level, given the further slowdown of the country\u2019s CPI rates for May. The slow-down may ease further the pressure on the bank to alter its dovish stance and thus could weaken the JPY in the coming week.<\/p>\n\n\n\n The common currency is about to end the week weaker against the USD yet is gaining ground against the JPY and GBP. On a monetary level, ECB\u2019s hawkishness seems to have been maintained over the past week, an element that may have provided some support for the common currency. ECB Vice President De Guindo\u2019s statements that the slowdown of underlying prices at a core level is still not as pronounced as expected. Such a viewing of inflationary pressures in the Eurozone may force the bank to maintain its hawkish stance thus providing some support for the EUR at the current stage. Hence we highlight the preliminary release of June\u2019s HICP rates for Germany, France and the Eurozone as a whole and should the rates slow down further we may see them weighing on the common currency as they may ease the pressure on the bank eases. It should be noted though that on a producers level inflation contracted even further in May which tended to underscore the possibility of further easing of inflationary pressures at a consumer level for the area. The tightening of the bank\u2019s monetary policy does not come without a cost, as economic activity in the manufacturing sector with a special focus being on Germany, possibly the spearhead of the area\u2019s exports, contracting once again intensifying our worries for the economic outlook of the area.<\/p>\n\n\n\n AUD\u2019s three-week winning streak against the USD was abruptly interrupted as the Aussie lost considerable ground. On a monetary level, the release of the June meeting minutes of RBA tended to provide some grounds for the retreat of the Aussie, as the document revealed that the decision for a rate hike was \u201cfinely balanced\u201d, thus implying that RBA policymakers were in the limbo on whether to hike rates or not. The release tended to ease our expectations for further rate hikes by the bank. It should be noted though that RBA Deputy Governor Bullock stated that higher rates are the only way for the bank to curb inflationary pressures in the Australian economy, a statement that tended to imply that more rate hikes may be in the pipeline. At this point, we must note again the political pressure exercised on RBA Governor Lowe, as he is up for reappointment. Australian Finance Minister Chalmers seems to prefer, according to local media, Deputy Governor Bullock as his replacement for the time being. On a more fundamental level and given the close Sino-Australian ties, our worries for the headwinds faced by the Chinese economy trying to recover, tend to be maintained. We note that the Central Bank of the People’s Republic of China cut lending rates in an effort to boost activity in the Chinese economy, yet the cuts delivered may not be sufficient to revive it. We expect the release of China\u2019s June NBS manufacturing PMI figure to show whether economic activity in the Chinese giant continues to contract and if so may weaken the Aussie further.<\/p>\n\n\n\n The CAD seems about to end the week in the reds against the USD but just barely. On a monetary level, we note that BoC in its June deliberations was convinced by the \u201csurprisingly resilient consumer spending\u201d that its monetary policy was not sufficiently restrictive and required another rate hike. The bank\u2019s view was reaffirmed on a macroeconomic level, by the acceleration of the retail sales growth rate for April. We would also add to that, the relatively tight Canadian employment market despite the drop of the employment change figure, and the widening of the trade surplus for April, tended to provide some justification for the rate hike. For the time being the market seems to expect another rate hike in the bank\u2019s July meeting and on a monetary level that may provide some support for the CAD. For the time being, we note the release of Canada\u2019s CPI rates next week and a possible acceleration of the rates could provide additional support for the CAD as it may sharpen the bank\u2019s hawkishness, while a possible slowdown could weaken the CAD as it may ease the pressure on BoC. On a more fundamental level, the Loonie is expected to continue to be moved by the market sentiment as a commodity currency and a more risk-on approach of the market could possibly support the CAD. Furthermore, CAD traders should keep a close eye over the course of oil prices given that Canada is a major oil-producing economy. WTI prices seem about to end the week in the reds. Possibly clipping the Loonie\u2019s gains and should the drop be extended into the coming week as well we may see the CAD suffering some losses.<\/p>\n\n\n\n In the coming week, we expect volatility to ease somewhat, given that the number of high-impact financial releases is reduced. We also expect that the USD may relent more of the initiative to other currencies allowing for other currencies to shine under the spotlight and thus create an even more balanced blend of trading opportunities in the FX market. As an epilogue, we would like to make a comment on the interest rate decisions released yesterday besides BoE. The Swiss National Bank delivered a 25 basis points rate hike that tended to pass rather unnoticed as it may have been expected by the markets. Norges Bank on the other hand, took the markets by surprise and delivered a 50 basis points rate hike and stated in its forward guidance that more rate hikes lay ahead. The bank\u2019s intentions could continue to provide support to the Norwegian Krona on a monetary level. Finally the big disappointment for exotic currency pairs on Thursday may have been served by the Turkish Central Bank. The bank given the change of leadership was expected to perform a pivot from its previous dovish stance and hike rates considerably, signaling a return to orthodox economic policies. Some analysts even considered that the bank could raise the one-week repo to 21%. Any case, the bank seems to have failed to meet the market\u2019s hawkish expectations as it raised the one week repo rate to 15% from prior 8.5%. The decision may have intensified the market\u2019s doubts about the sincerity of Erdogan\u2019s intentions and thus allowed for the Lira to enter a freefall, with USD\/TRY reaching a new record high at 24.5. The decision is understandable in the sense that the bank may not have wanted to raise interest rates too quickly yet it failed to communicate its intentions early on. We expect that the weakening of the TRY may be maintained on Monday unless we see some dramatic moves by the Turkish Government.<\/p>\n\n\n\n![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-109.png\")
<\/figure>\n\n\n\nJPY \u2013 CPI rates continue to ease<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-110.png\")
<\/figure>\n\n\n\nEUR \u2013 Contraction of economic activity weighing<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-111.png\")
<\/figure>\n\n\n\nAUD \u2013 The Aussie breaks its three-week winning streak<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-112.png\")
<\/figure>\n\n\n\nCAD \u2013 Canada\u2019s CPI rates in focus<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-113.png\")
<\/figure>\n\n\n\nGeneral Comment<\/h2>\n\n\n\n