Headlines continue to be dominated by ongoing talks concerning the US debt ceiling, posing a genuine concern for global markets. This situation could potentially lead to an unprecedented US government default. While some progress has been made last week and a resolution still appears to be the most probable outcome, the uncertainty surrounding the issue is negatively impacting overall sentiment.
In the UK, there are indications of a slowdown in the job market, as the number of payrolled employees unexpectedly dropped. Additionally, the unemployment rate saw a slight increase to 3.9%, while average earnings experienced a growth of 5.8%.
Ahead of their next meeting, the Bank of England will receive further data on jobs and inflation. Currently, the market is pricing in a 75% likelihood of an additional interest rate hike.
The committee hopes for a significant decrease in inflation data this week to alleviate some of the pressure, given that recent economic indicators have been sending mixed signals.
It is likely that the US Central Bank has reached the conclusion of its historic cycle of interest rate hikes. Market expectations include aggressive rate cuts in the latter half of this year due to declining inflation, although the overall outlook remains highly uncertain.
On the other hand, the European Central Bank maintains a notably hawkish stance and is expected to continue raising rates in the coming months. Their rate hikes started later and from a lower base compared to other central banks.
In the realm of currency exchanges, the uncertainty surrounding the US debt ceiling is contributing to a risk-averse environment and bolstering the dollar. Consequently, GBP/USD is trading near its lowest point of the month, around 1.2400, while GBP/EUR remains close to its highest level of the year, hovering around 1.1500.
