News, insights and analysis from the global FX markets
GBP: A good position, a good time to lock in rates
The British Pound (GBP) performed well as its rates skyrocketed in the first half of June. GBPUSD saw strong gains for three consecutive days, where buyers picked up 2.75% against the dollar – the highest since April 2022 – while GBPEUR rates weren’t as aggressive sitting at 1.1750, they still gave best prices since August last year.
In June, despite the Bank of England previously indicating interest rate hikes would slow down, it announced another increase after a much higher than anticipated inflation reading. Interest rates are now at 5%.
Overall, GBP currency pairs are in great positions meaning it’s a good time for businesses to take advantage of the positive rate movements and to lock them in for a fixed period.
EUR: Continued uncertainty keeps EUR volatile
For the Euro (EUR), we continue from last month’s theme of inflation and monetary policy as more changes took place.
The European Central Bank (ECB) followed through on its hint of another interest rate hike at 25 basis points (0.25%), while Services and Manufacturing Purchasing Managers’ Index (PMI) for France and Germany were below forecast.
As inflation across the Eurozone continues to vary – for example, Spain’s inflation is under control while Germany’s is still too high – the ECB’s decisions are getting harder and the EUR remains volatile against other currencies.
In addition, Eastern Europe geopolitics saw an interesting development as the BRICS+ initiative is still going ahead. As a knock-on effect from the sanctions, the initiative will create an alternative to the USD. The impact on the trade and capital flows will be monitored as it progresses.
AUD: A high followed by a fall for rocky AUD
The Australian Dollar (AUD) saw a monthly high in the first half of June reaching 0.6890, however it was short-lived. As commodity prices dropped and weak global S&P PMIs were announced, the AUD fell below 0.6600 by the end of the month.
Last month, we anticipated an interest rate hike of 25 basis points (0.25%) by the Reserve Bank of Australia (RBA) in June. Not only did this occur, but the local unemployment rate also fell to 3.6% with a surprise 75.9k jobs added in May boosting the AUD in the first two weeks of June. We now believe the RBA will pause in July as the latest inflation figure came to the lowest level in 13 months.
Also, the Australian Consumer Price Index (CPI) declined to 5.6% in May from 6.8% last month and below expectations of 6.1%. As a result, tightening expectations from the RBA have eased but markets can expect more rate hikes before the end of the year.
NZD: An end to rate hikes with inflation dropping
The New Zealand Dollar (NZD) performed well-below average among G10 currencies last month as the Reserve Bank of New Zealand (RBNZ) signalled an end to its aggressive interest rate hiking cycle since 1999.
The NZDUSD rose to a monthly high of 0.6254, however due to the RBNZ Federal Monetary Policy outlook, it fell below 0.6100 back to its position at the start of the month. Additionally, the worsening US-China relations and global recessions fears are having an impact on the NZD.
While interest rates are high, New Zealand inflation expectations dropped sharply to 2.79%.
THB: A weak THB from political uncertainty and eased recession worries
The Thai Baht (THB) reached a seven-month low in June due to political uncertainty and the resulting investors’ risk appetite dampening.
Specifically, the political concerns are around the leading candidate’s ability to win enough votes to become prime minister in the upcoming parliamentary session.
The THBUSD has weakened 2.2% since the start of the year while many other emerging Asian currencies’ values have also decreased against the stronger USD as recession worries have eased.
JPY: The widening monetary policy stance affects JPY
The Japanese Yen (JPY) dropped below 145 against the USD, its lowest in nearly eight months. The change has brought attention to the difference in monetary policies between Japan and other major countries, with the Japanese government expressing readiness to take action and intervene. They did the same last year when the JPY approached 146.
The yen’s decline is attributed to the widening gap between Japan’s accommodative monetary policy and the more hawkish stance of countries like the United States. The yen’s weakness is also influenced by global yield movements, while Japan continues to maintain negative interest rates.
USD: A strong USD remains despite hiking streak stop
As the Federal Reserve ended the year-long hiking streak, United States Dollar (USD) fell from the top performing currency last month. Currencies that are still increasing rates have outperformed the USD gaining on average 1.4% in the month of June.
However as we look over to the other side, out of all the currencies not in hiking cycle, USD remains the strongest performer fuelled by strong employment and economic growth data.
Despite not increasing rates in June, Federal Reserve members are still anticipating either one or two hikes to take place in S2 2023, which would provide solid support for the USD in the coming months. Analysts are expecting the next hike to be as soon as July.
CNH: A continued record-breaking fall for CNH
The Chinese renminbi (CNH) saw another record, finishing the month losing more than 2.3% against the USD. After breaking consecutive key levels of 7.10 and 7.20, it is now treading close to 7.30 – a level last seen in November 2022 and viewed by many as a key defence level.
This is on the back of disappointing economic data and a shaky domestic stock market sending worrying signals to global investors.
Starting in the last week of June, the People’s Bank of China (PBOC) stepped in to try to tame the speed of the CNH depreciation, however the effects have been limited.
Unlike November last year where the CNH depreciation was at least partly due to market speculation, the recent round is more likely a true reflection of the diverging monetary policies and economic outlook between two of the biggest economies in the world.
Having said that, a cheaper CNH makes for easier merchandise shipping for Chinese exporters. Combined with record low loan rates, we hope to see the export sector recovering over the coming months.
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