![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-139.png\")
<\/figure>\n\n\n\nGBP \u2013 BoE maintains its hawkishness<\/h2>\n\n\n\n
The pound is losing ground against the USD and EUR while it remains rather stable against the JPY, not exactly a sign of sterling\u2019s strength. On a more fundamental level, we note the readiness of the UK Government to nationalize, even on a temporary basis, the large and highly indebted utility company Thames Water. Mind you that may not be the only UK water company in trouble. Such a development may burden the already strained fiscal policy of the UK Government. On a monetary level, we note that BoE seems to be maintaining its hawkishness and preparing for another rate hike. BoE Governor Bailey from Sintra, Portugal signaled that the bank is ready to keep rates at high levels, may we add even higher levels, for a prolonged period given the persistent inflationary pressures and the tight UK employment market. Please note that BoE Governor Bailey dismissed the idea that the UK employment market remains tight as a result of Brexit and instead suggested that it\u2019s a response to the passing of the coronavirus crisis. Overall we expect the bank to remain hawkish which in turn may support the pound in the coming week somewhat. On a macroeconomic level, we note that the CBI distributive trades remained little changed in the negatives, showing a pessimistic outlook for UK retailers. Furthermore the wider contraction of the Nationwide House prices for June, was another possible symptom of BoE\u2019s monetary policy tightening. Also, the GDP rate for Q1 remained in the positives, yet at anemic levels and given BoE\u2019s hawkish intentions we may start seeing a recession on the horizon for the UK economy.<\/p>\n\n\n\n JPY is losing ground against the USD and EUR and seems to remain relatively stable against the pound as the week draws to a close, in a sign of wider weakness. Given the recent hawkish comments from ECB, FED and BoE officials on the one hand and the BoJ leaning on the dovish side on the other, we highlight the divergence of monetary policy outlooks which tends to weigh on the Japanese currency. The bank seems to remain dovish and ready to keep its ultra-loose monetary policy settings in place. It\u2019s characteristic that BoJ Governor Ueda, stated while being at ECB\u2019s forum that the underlying inflation is still below the bank\u2019s 2% implying that there is good reason for BoJ\u2019s dovish stance. Furthermore, we note that BoJ hit a new high in JGB holdings as the bank keeps pumping and may intensify bearish tendencies for JPY. Overall we note on a fundamental level that JPY is expected to continue weakening given that interest rate differentials widen as mentioned before, carry trade is also a threat and inflation seems to be easing, thus cementing BoJ\u2019s stance, while the trade balance remains in the negatives, implying that more wealth is exiting the Japanese economy from the country\u2019s international trading activities. On the other hand, JPY may get some support should the Japanese government come to the rescue of the Yen, given that Japan\u2019s Finance Minister Suzuki declined to rule out the possibility of a market intervention. Furthermore, JPY may start getting its appeal back as a safe haven instrument should tensions in the global political scene and\/or market uncertainty be on the rise again.<\/p>\n\n\n\n The common currency is gaining ground against the USD, JPY and GBP in a sign of broader strength for the common currency. ECB\u2019s hawkish rhetoric seems to have contributed to that end. The bank sharpened its hawkishness at its annual forum in Sintra, Portugal over the past few days. ECB President Christine Lagarde cited the inflation tormenting the Zone as too high, while also implying that more rate hikes could be expected as she mentioned that “It is unlikely that in the near future, the central bank will be able to state with full confidence that the peak rates have been reached,”. Furthermore, we note that ECB Vice President De Guindos left the possibility for a rate hike in the September meeting open, while the market prices in a 25 basis points rate hike by the bank in its next meeting in July and another one in the September meeting. It\u2019s understandable that the bank may keep rates at high levels for a prolonged period of time. As for the dynamics within the ECB, we expect Germany\u2019s BuBa President Nagel to push harder for more rate hikes, given that the HICP rate seems to have accelerated in Germany for the current month despite slowing down everywhere else in the Eurozone, which in turn may deepen the rift between hawks and the rest in the ECB. On a macro level, the situation is not rosy. It should be noted that the economic outlook for the German Economy seems to become more pessimistic in June while also the conditions on the ground are deteriorating and should such indications multiply we may see EUR slipping.<\/p>\n\n\n\n AUD\u2019s weakening against the USD, from last week seems to continue, yet at lesser intensity. Nevertheless, the fundamentals are still providing headwinds for AUD given the market worries for a possible economic slowdown on a global level and at the same time AUD\u2019s second nature as a commodity currency, which is also considered more risky. Furthermore, we note that China\u2019s economic recovery is still not convincing, given that the NBS manufacturing PMI figure remained below the reading of 50, despite improving, implying another contraction of economic activity that may not bode well with Australian exporters of raw materials. At the same time, we note that inflation seems to have eased in Australia for May considerably. A development that may also allow RBA to dampen its hawkishness in its next interest rate decision, due out on Tuesday. For the time being, we note that AUD OIS imply a probability for the bank to remain on hold at 4.1% of 62.78%. It\u2019s understandable as the minutes of the last interest rate decision, showed that the bank was ready to remain on hold at its last meeting and the decision to hike rates was taken with a \u201cfine balance\u201d, as we mentioned in a prior report. Given also the slowdown of the CPI rate we may see the bank pausing its rate-hiking path. Yet the market for the time being seems to expect another rate hike in the bank\u2019s August meeting. Hence should also Governor Lowe\u2019s accompanying statement, lean less on the hawkish side and also underscore that the bank is to remain data dependent implying more uncertainty, we may see the Aussie weakening as the market\u2019s expectations may be contradicted.<\/p>\n\n\n\n The CAD is about to end the week in the reds against the USD, ending a winning streak of four weeks. On a macroeconomic level, we note that Canada\u2019s CPI rates for May slowed down both on a core and headline level. The release may have been the main factor weakening the Loonie as the slow-down has supported the case for BoC to remain on hold. For the time being though the market seems to marginally price in the possibility of another rate hike in its July meeting and stand pat for the remainder of the year. Yet at this point, we have to note the worries for the Canadian housing market and mortgages. Overall should the markets maintain and intensify their expectations for another rate hike we may see the CAD getting some support. On a more fundamental level and given that Canada is a major oil-producing economy, we note the slight rise of oil prices for the week, which if continued and extended in the coming week may provide some support for the CAD as well. It should be noted that oil prices got unexpected support on Wednesday as the As a closing comment, we expect the USD to regain some of the initiative in the FX market over other currencies given that the number of high-impact releases stemming from the US seems to increase, with the US employment report for June on Friday being the highlight. Nevertheless, there are still instances that may allow other currencies to get under the spotlight and form their own course. As for US stockmarkets, we note the rise of Nasdaq, Dow Jones and S&P 500 as the week is about to end, implying an improved market sentiment US stockmarkets seem to have gotten a boost from improved market data. Should the market sentiment be improved in the coming week, we may see US equities getting some support. Furthermore, we note the steepening of the inversion of US yields highlighting the short-term risk the US economy is currently facing. A continuation of the rise of US yields may at the same time have a negative effect on gold\u2019s price, given that the precious metal is not bearing interest, thus bonds may be more appealing. Also a possible strengthening of the USD could weigh on gold\u2019s price further and vice versa.<\/p>\n\n\n\n![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-140.png\")
<\/figure>\n\n\n\nJPY \u2013 BoJ remains dovish<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-141.png\")
<\/figure>\n\n\n\nEUR \u2013 ECB locks in next rate hike<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-142.png\")
<\/figure>\n\n\n\nAUD \u2013 RBA\u2019s interest rate decision in focus<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-143.png\")
<\/figure>\n\n\n\nCAD \u2013 Canada\u2019s employment data eyed<\/h2>\n\n\n\n
EIA weekly US oil inventories figure dropped by 9.604 million barrels, substantially more than last week\u2019s drawdown and than what the market expected. The release highlighted the US oil market\u2019s tightness thus pushing oil prices higher. On the other hand, we note market worries for the demand side of the commodity may have clipped oil price\u2019s gains. Should oil prices continue to rise, we may see the CAD getting some support. Last but not least, we would like to express our continuous worries regarding the wildfires in Canada as another ecological catastrophe is taking place.<\/p>\n\n\n\n![\"\"](\"\/wp-content\/uploads\/2023\/06\/image-144.png\")
<\/figure>\n\n\n\nGeneral Comment<\/h2>\n\n\n\n