Morning Report

July 6, 2023

“The dollar was holding its ground this morning, underpinned by the minutes of the US Federal Reserve’s latest policy meeting, which strengthened expectations of an interest rate increase later this month. Simultaneously, a prevailing risk-averse sentiment in the market provided some boost to the Japanese yen.”

Tim Hallinan – Trading Director

Main Headlines

Federal Reserve officials have indicated their intention to resume raising interest rates in response to the prevailing consensus that tighter monetary policy is necessary to combat high inflation in the largest global economy. The minutes from the Federal Open Market Committee’s June meeting revealed that “almost all” participating officials believed that further increases in the Fed’s benchmark interest rate would be suitable. They also highlighted the “tight” labour market and the “upside risks” to inflation as significant factors shaping the economic outlook, even after the central bank had implemented a series of interest rate hikes over the past year and a half to mitigate inflationary pressures.

Labour leader Sir Keir Starmer is set to announce plans for reforming early-years education in England, aiming to help an additional 500,000 children achieve their learning goals by 2030. The Labour Party is considering the inclusion of more graduate teachers in nurseries as part of these reforms. Starmer will pledge to break down the “class ceiling” in the UK by enhancing the nursery and school system. Ahead of an anticipated general election next year, Starmer will outline his strategy to expand “opportunity” while exploring the possibility of offering more nursery places at primary schools. Nurseries are currently facing challenges in recruiting and retaining low-paid staff for often complex roles.


Sterling is well bid against most major currencies this morning. Later today, the Decision Maker Panel survey for June by the Bank of England will provide an update on inflation expectations. In recent months, firms’ medium-term projections have remained stable at around 3.5% following a peak in September. The duration of office leases in the UK has reached a record low, while vacancy rates have surged close to a ten-year high due to the transformative impact of remote work on the market. India’s top trade official expressed optimism about the ongoing trade negotiations with the UK, describing them as progressing well. Remaining obstacles, such as easing temporary work visas for Indians and opening industries like automotive and spirits, were downplayed.


Euro has given up earlier gains to the dollar and is weaker against sterling this morning. In May, there was a greater-than-anticipated increase in German manufacturing orders, primarily due to the strong demand for vehicles. Manufacturing orders surged by 6.4% from April, surpassing the projected 1.2% increase. Notably, orders for car production experienced a notable 8.6% month-on-month rise. Furthermore, in the “other vehicles” category, which includes ships and trains, there was a substantial increase of 137% in orders. The Swiss National Bank continues to view inflation in Switzerland as significantly high. Although Swiss inflation dropped to 1.7% in June, the government expects the central bank to maintain its current path and raise interest rates at least once more.


The dollar lost ground to most major currencies in the early morning trade but has started to retrace its losses. Treasury Secretary Janet Yellen is en route to Beijing for talks with her Chinese counterparts during a tense period for both countries. Ongoing trade restrictions and rising strategic tensions related to Taiwan and the South China Sea have strained bilateral relations. The Biden administration has appealed a federal judge’s ruling that limited certain agencies and officials from engaging with social media companies to moderate content. Meanwhile, Republican presidential candidate Donald Trump’s primary fundraising committee raised over $35 million in the April-June period, nearly doubling the amount collected in the previous three months.


Stocks dropped as global markets responded to Federal Reserve commentary that was more hawkish than expected. UK government bonds fell. European and Asian stocks saw broad declines, while contracts on the S&P 500 pointed to a continuation of Wednesday’s losses on Wall Street. In the UK, yields on 10-year government bonds climbed to the highest since the gilts crisis last October, when then Prime Minister Liz Truss’s fiscal plan unnerved markets. Traders are now fully pricing a terminal Bank of England rate of 6.5% by March, the highest level in a quarter century. Tightening policy also remains an investor concern for the US.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Germany May Factory Orders
8:30 a.m.: Hungary May Industrial Production
9:30 a.m.: Germany June Construction PMI
10:30 a.m.: BOE releases Decision Maker Panel survey
10:30 a.m.: UK June Construction PMI
11:00 a.m.: Euro-area May Retail Sales
2:15 p.m.: US June ADP Employment Change
2:30 p.m.: US Jobless Claims, May Trade Balance
2:45 p.m.: Fed’s Logan speaks
4:00 p.m.: US May JOLTS, June ISM Services
6:00 p.m.: ECB’s Nagel speaks
Poland Rate Decision


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