This week witnessed a relatively quiet period in terms of data releases, resulting in a stable rate environment throughout. The United States posted significant data points in the form of the latest consumer confidence, advanced GDP, and unemployment figures. Notably, all of them differed vastly from the forecasts, particularly the advanced GDP figures that fell below expectations at 1.1% (forecast to be 2%). While this could appear as a sharp decline, it outperformed the earlier readings this year, and therefore, the situation may not be as bleak as it seems. The focus now shifts towards the upcoming interest rate decision by the Fed next Wednesday, where it is highly probable that there will be a 25bp hike, given the current forecasts. The real volatility will emerge with comments from Fed members regarding policy in the future.

The possibility of base rate cuts in the US by the end of the year has reduced following robust Q1 PCE index results, but the USD did not capitalise on this, and instead, sentiment has shifted towards the EUR. The Eurozone has emerged as the dominant player in the G3, with base rate hikes set to continue from the ECB until at least the end of the year, supported by recent data. The UK has also outperformed this year, and Jeremy Hunt’s predictions that the IMF forecasts were incorrect and that the UK would be the worst-performing country in the G10, are now coming true. Hunt and Sunak may now be feeling contented as they move towards relative economic stability following their previous budget.

Goldman Sachs predicts that the Bank of England (BoE) will reach their terminal rate between 4.75% to 5%, and as a result, we may be approaching the last interest rate hike before the BoE becomes more data-dependent. In summary, the week has been relatively subdued, and markets are now awaiting the next phase of the economic cycle induced by the Covid-19 pandemic. The months ahead will reveal the extent of the problems caused by multiple issues affecting the economic, political, and humanitarian states worldwide. However, it seems that the economic consequences may not be as severe as initially anticipated.