ECB Keep Interest Rates The Same.

The European Central Bank plans to raise interest rates next month for the first time since 2011 after warning inflation would increase by more than previously estimated. Resisting calls for a 0.5% increase next month, the ECB’s governing council said the base rate for the 19-member currency bloc would be raised by 0.25% with a further, and possibly larger increase scheduled for September. The rise in July will lift the main deposit rate for commercial banks from -0.5%, and increase the 0% lending rate towards the Bank of England’s equivalent base rate of 1%.

Applications for US state unemployment insurance rose by the most in nearly a year during the week that included the Memorial Day holiday. Initial unemployment claims climbed broadly across states by 27,000 to 229,000 in the week ended June 4, Labor Department data showed Thursday.

U.S. stocks sold off sharply Thursday as investor anxiety heightened ahead of data on Friday that is expected to show consumer prices remained elevated in May. Adding to nervousness, the benchmark U.S. 10-year Treasury yield climbed to as much as 3.073%, its highest level since May 11. Recent sharp gains in oil prices also weighed on sentiment before Friday’s U.S. consumer price index report.

The data is expected to show that consumer prices rose 0.7% in May, while the core CPI, rose 0.5% in the month. All three of the major indexes registered their biggest daily percentage declines since mid-May. The S&P 500 is down 15.7% for the year so far and the Nasdaq is down about 25%.

Higher-than-expected inflation readings could increase fears that the U.S. Federal Reserve will raise interest rates more aggressively than previously expected. The central bank has raised its short-term interest rate by three-quarters of a percentage point this year and intends to keep at it with 50 basis points increases at its meeting next week and again in July.

Prime Minister Boris Johnson on Thursday said that the surge in inflation meant the government could not simply spend more to support people through the cost-of-living crisis, and to increase wages sharply would risk fuelling further price rises. Johnson said it was right that the government increased spending during the COVID crisis but a strong and healthy economy would not emerge if it carried on in the same way.

Economic Calendar

Expected Previous
12:30 US Consumer Price Index (MoM)(May) 0.7% 0.3%
12:30 US Consumer Price Index (YoY)(May) 8.3% 8.3%
12:30 US Consumer Price Index ex Food & Energy (MoM)(May) 0.5% 0.6%
12:30 US Consumer Price Index ex Food & Energy (YoY)(May) 5.9% 6.2%
12:30 CAD Unemployment Rate (May) 5.2% 5.2%
14:00 US Michigan Consumer Sentiment Index (Jun) 58 58.4

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.