The Bank of England held its interest rate at 3.75% for a fourth consecutive meeting on June 22nd, deeming it premature to raise rates given the uncertain strength of rising inflationary pressures. The Monetary Policy Committee voted 7-2 to keep rates steady, aligning with widespread market expectations. Committee members Greene and Chief Economist Pill advocated for a 25-basis-point hike. The majority of other members largely maintained what Governor Bailey termed a stance of "active hold." Bailey argued that this position itself constitutes an effective tightening compared to market expectations for rate cuts prior to the conflict's onset. Both Pill and Greene indicated that raising rates now would help anchor household inflation expectations. According to the central bank's quarterly survey, household inflation expectations have climbed to their highest level since at least 2009. A preliminary ceasefire agreement between the US and Iran, which could reopen the Strait of Hormuz and push oil prices lower, may benefit the UK due to its heavy reliance on imported natural gas, provided the deal holds. However, Governor Bailey stated in the announcement: "Regardless of future developments, higher energy prices over the past four months have already set some inflationary pressures in motion."
Additionally, Deutsche Bank has comprehensively revised its inflation forecasts upwards in its latest research report and completely reversed its previous monetary policy predictions. It now anticipates the Federal Reserve will implement two rate hikes (totaling 50 basis points) in 2026, pushing the federal funds rate to 4.1%, with the possibility of an earlier hike in July not ruled out. The bank's chief US economist, Matthew Luzzetti, and his team noted in the report that this necessitates a rapid repricing of the "higher for longer" macro environment. Previously established expectations for easing, based on potential Fed "over-insurance" rate cuts, are set to be shattered, with fixed income markets facing direct impact from revaluation, and interest-rate-sensitive asset classes needing to brace for potential sharp near-term volatility.
Key data to watch today includes Canada's May unadjusted CPI annual rate and the preliminary reading for the Eurozone's June Consumer Confidence Index.
US Dollar Index
The US Dollar Index moved lower on Friday, closing with a slight decline and currently trading around 100.80. Profit-taking exerted some downward pressure, alongside a reduction in safe-haven demand for the dollar as Middle East tensions eased. However, rising expectations for Federal Reserve rate hikes limited the extent of the index's pullback. Resistance is seen near 101.30 today, with support around 100.30.
Euro/US Dollar
The Euro traded within a narrow range on Friday, ending the day marginally higher and currently hovering around 1.1470. Support stemmed from short-covering and a retreat in the US Dollar Index due to diminished safe-haven demand. Nevertheless, the prospect of Fed tightening capped the pair's upside potential. Resistance is anticipated near 1.1550 today, with support around 1.1400.
Pound Sterling/US Dollar
The Pound Sterling edged higher on Friday, closing with modest gains and currently trading near 1.3220. The move was supported by short-covering and a weaker US Dollar Index amid reduced safe-haven flows. Furthermore, better-than-expected UK retail sales data released during the session provided additional support. Resistance is eyed near 1.3300 today, with support located around 1.3150.