ECB To Decide On Rates, UK CPI Inflation Remains Steady In June

On Thursday, it will be the European Central Bank’s (ECB) turn to decide on interest rates with most economists focusing on the decision but also searching for clues regarding the future steps that the governing board will be willing to take.

In the UK, headline inflation remained steady at 2.0% in June, but a stubbornly high services inflation figure generated a debate over a potential rate cut in August.

In other news, gold prices soared to a new all-time high of $2,469 per ounce on Tuesday as analysts forecast that the US Federal Reserve (Fed) could begin its easing cycle in September, while also looking at the political developments before the November presidential elections.

ECB Interest Rate Decision

On Thursday afternoon, the ECB’s governing council will announce its interest rate decision in Frankfurt, Germany. Economists forecast no change in interest rates after the end of the upcoming meeting. Last month, the ECB decided to reduce borrowing costs by 25 basis points for the first time in the last five years after ten rate hikes.

Market analysts at ING agree that the ECB won’t be making any surprise move regarding interest rates in Thursday’s meeting. They suggest that two more rate cuts of 25 basis  points each are on the table this year, in September and December.

In their report they note that “we do not think that this Thursday’s press conference will provide more clarity on the ECB’s outlook. The central bank might take care not to repeat the mistake of committing to a cut too far ahead, and the main goal this time around should be not to disrupt markets – reflecting ECB member Klaas Knot’s remarks that he was ‘fine’ with market expectations.”

UK CPI Remains Steady In June

An ONS survey published on Wednesday revealed that headline inflation in the UK remained at 2.0% in June, in line with the Bank of England’s (BoE) target. Economists had expected that inflation would come in at 1.9%. Core inflation also remained steady at 3.5%. As a result, the British pound gained 0.3% against the US dollar earlier in the morning.

Rabobank’s analysts speaking to CNBC noted that services inflation coming in at 5.7% could play a significant role in the upcoming BoE rate decision meeting scheduled in August. “It’s really not a done deal for August. We think many of the members of the policy committee, and a lot of economists will be looking at that services sector inflation and worrying a bit,” they said.

A report by The Guardian quoted Deutsche Bank’s economists: “For the majority of the MPC, today’s inflation report won’t be as encouraging as it may have anticipated. Undoubtedly, today’s services print raises the bar for an August rate cut. But there is a key caveat here. With live music and accommodation prices rising at such speed, the MPC could potentially be minded to look past some of the upside in services inflation. To be sure, we now think that an August rate cut is finely balanced. A lot will now depend on the strength of the May wage and unemployment data.”

Japan National CPI June 2024 Report

Early on Friday morning, Japan’s National Statistics Bureau will release June’s National CPI data. Market analysts expect core National CPI inflation to come in at 2.8%, recording a surge when compared to May’s figure.

Later this month the Bank of Japan (BoJ) will meet to discuss monetary policy including rates and could reveal more details to their bond tapering plans.

IMF Says Higher Rates For Longer Probable

The International Monetary Fund (IMF) warned that consumers should be prepared for interest rates higher for longer than expected, as inflation in many countries remains elevated, making a special mention for services inflation.

The IMF’s World Economic Outlook published on Tuesday said that persistent services prices and geopolitical tension could have an effect on interest rate policies implemented by central banks around the world.

The IMF sees the global economy expanding 3.2% in 2024, in line with its April forecast. The IMF downgraded its forecast for US growth to 2.6%, 0.1% lower than projected in April.

Regarding the eurozone, IMF economists see a 0.9% GDP expansion, 0.1% higher than the previous report. The IMF also made upward revisions to its 2024 growth forecasts for India and China, which it now expects to expand by 7% and 5% respectively.

New Zealand CPI Inflation Slows In Q2 2024

Statistics New Zealand reported that CPI inflation slowed to 3.3% on an annualised basis in the second quarter, the lowest level recorded since June 2021. On a quarterly basis, inflation rose by 0.4% in Q2, although economists had expected a 0.6% surge.

Despite the CPI inflation drop, the reading is still above the 1%-3% target range set by the Reserve Bank of New Zealand (RBNZ) governing board which is unlikely to cut range before further reducing consumer prices growth. Kiwibank’s economists however are optimistic regarding rate cuts noting that “our call is that they'll cut rates in November which is a year ahead of what they said they were going to do, and I think they'll see this quarter's CPI report which comes out in mid-October as being a catalyst to cut.”

Test Your Trading Strategies on an Admirals Risk-Free Demo Account

Are you interested in practising trading without risking your funds? A demo trading account from Admirals allows you to do just that, whilst trading in realistic market conditions. Click the banner below to open a demo account today:

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.