Russia is on the brink of an historic debt default as it hasn’t paid interest payments of $100 million which were due on the 27th of May, and subject to grace period that expired on Sunday night. This would be the country’s first foreign debt default since 1918, despite having the funds and the willingness to pay. The Kremlin blames Western sanctions as it assures the payment has been made but rejected due to international sanctions. Russian banks and banks linked to them were banned from the SWIFT network in March in a sweep of sanctions that effectively ostracised Moscow from the global financial system. Russian Finance Minister Anton Siluanov called the situation a “farce” and disputed the term default stating that term usually constitutes unwillingness or inability to pay.
The ongoing G7 (Canada, France, Germany, Italy, Japan, United Kingdom, United States and European Union) summit saw the group announce a $600bn initiative to counter China’s Belt and Road initiative. The group is set to raise $600bn over five years to fund infrastructure projects in middle and low-income countries, with the U.S. promising already $200bn and the EU $300bn. The announcement comes as several intelligence agencies warned of the Chinese debt traps in developing countries in recent years, despite no evidence so far of that and debt relief initiatives from the G20 nations that has seen $10.3bn delivered since May 2020 in debt relief, and China providing the majority of that package.
In the US, poor economic data last week showed consumer confidence at an all-time low, prompting investors to lower expectations on increases in US interest rates. Futures prices show traders now expect the benchmark US Federal Reserve funds rate to stabilise around 3.5% from March next year, a decrease from previous expectations which were expected to reach around 4% in 2023.
The situation is similar in the United Kingdom with core retail sales falling by -5.7 % in May compared to last year as inflation leads households to buy less food as per reported by the Office for National Statistics (ONS). The fear of recession and potential rise in unemployment is leading markets to expect lower increase in interest rates as well.
Cable saw US Dollar make small losses on Friday. GBPUSD opened at 1.2285 and close slightly under 1.2262.
GBPEUR remained stable last week as the pair opened at 1.1618 and closed to 1.1614, punctuating a calm week with just 0.10% increase on the pair.
EURUSD opened at 1.0526 and closed at 1.0554, marking small gains for the EUR.