Federal Reserve Chairman testifies for two days in front of the US Congress. UK government debt spending is reaching all-time highs despite good PMI results. European leaders are set to welcome Ukraine and Moldova as candidates to the EU but are seeing poor PMI results for this month.
US Federal Reserve (Fed) Chairman Jerome Powell acknowledged on Wednesday that the strength of inflation had surprised monetary authorities and warned that "other surprises" could occur. In a testimony to Congress, Jerome Powell also assured that the American economy was sufficiently “solid and well placed to face a monetary tightening”. Inflation has reached a 40-year high in the United States in May, and the Fed has already increased interest rates by 150 basis points from 0.25% at the beginning to 1.75% as of last week, the highest single interest rate hike since 1994. However, data suggests that GDP growth is accelerating this quarter with very strong consumer spending remaining a key factor in that aspect, despite a slowdown in real estate investment.
In the United Kingdom, soaring debt costs add to UK government borrowing in May. Official data published this morning show that the government borrowed £14bn in May, as Rishi Sunak announced a £15bn support package for households last month. The government interest bill rose by 70% in May compared to last year as it reached £7.6bn, the biggest ever cost for the month of May and the third-highest for any month, ever.
PMI figures data this morning in the Kingdom this morning were positive, coming in slightly higher than anticipated for services and composite at 53.4 and 53.1, a bit lower than expected for manufacturing at 53.4 as well. All remain in expansion showing that businesses in the UK are still working as usual despite the rising costs. Unlike the UK, the PMI figures in the EU were disappointing for France, Germany and the wider Eurozone as figures this morning came much lower than anticipated with French manufacturing coming in at 51.0 instead of the expected 54.0, German manufacturing and service coming in around 52.0 instead of the expected 54.0 and composite PMI of the Eurozone coming in at 51.9 instead of the expected 54.0.
Cable saw the recover slowly during the Jerome Powell’s speech to congress but plunged overnight ahead of the government debt spending figures. GBPUSD opened at 1.2243 and close slightly under 1.2264.
EURUSD followed a similar trend with the pair opened at 1.0518 and closed at 1.0564, marking small gains for the EUR, yesterday but the European currency plunged last night ahead of the disappointing PMI results of this morning.
GBPEUR remained stable yesterday as the pair opened at 1.1603 and closed to 1.1599 but poor PMI results in Europe saw the pound strengthen against the Euro last night.