2026-06-08 12:01

Key takeaways Headline indicators evidence the UK’s relatively benign position before the latest energy supply shock… …but business surveys point to weaker demand and greater price pressures… …a combination which could leave the BoE on the sidelines, waiting for more clarity before deciding on any policy change. Sector divergence across activity indicators On the face of it, the official data over the past month has been encouraging. Growth came in stronger than expected in Q1, the rate of inflation slowed to 2.8% y-o-y in April, and labour market conditions were soft – soft enough such that the risk of persistent inflation was subsiding but not weak enough to be of major concern to activity. However, those indicators are inherently backward looking, and other than higher petrol prices putting now upward pressure on inflation, largely reflect economic conditions before the conflict in the Middle East. Timelier business surveys paint a less reassuring picture. The PMI survey in May showed a loss of activity momentum and confidence in future output, driven by a subdued services sector. Within the sector, concerns are broad based, from higher energy costs, business rates, inflation and falling demand, with the pressures most acute in hospitality. The manufacturing sector, meanwhile, was more resilient, with the output index rising to its highest since October 2024. However, that perceived momentum is likely to be short lived given that both the proportion of manufacturers accumulating inventory, and those reporting global supply chain disruption, have doubled, according to an ONS business survey. For consumers, while official pay data may overstate the current decline in real incomes (-0.5% 3m/3m). Other pay indicators point to more robust pay growth but, in any case, a likely rise in inflation over the summer will drag on household purchasing power. Moreover, subdued confidence and heightened uncertainty may leave consumers sat on the sidelines, with both the housing market and leisure travel having already seen a drop in demand. Price pressures and policy choices Alongside the troubling demand backdrop, price pressures have intensified to levels comparable to previous global price shocks (chart 2). Forty percent of firms reported a rise in the cost of inputs in April, according to an ONS survey, with 20% of firms expected to raise prices in June. Higher energy and raw material prices are compounding elevated labour costs, and with further supply disruption possible, those pressures may persist over the second half of 2026. However, realised price increases have often undershot expectations (chart 3), a possible reflection of an inability to fully pass costs on when pressures are sector agnostic and demand is weak. For the Bank of England (BoE), the current growth-inflation mix in the data supports the premise that there is not a compelling case to rush to raise interest rate. Growth is soft, and despite price pressures in the pipeline, prospective pass through to consumer prices is uncertain. Indeed, BoE Governor Andrew Bailey recently noted the trade-off that higher interest rates have on ensuring inflation falls back to 2% in the medium term, and output growth. And as such, financial markets are not entirely convinced that we will see a rate hike this side of the summer. However, the pipeline of price pressures is evident. We expect inflation to accelerate to c4%, and the risk of second-round effects from both the pass-through of higher production costs and higher wage demands will keep the BoE on high alert for some time. For now, though, with the policy rate still in restrictive territory and already tighter financial conditions, policymakers may prefer to wait and see, in the hope for greater clarity on the conflict, and to see how households and business will respond. https://www.hsbc.com.my/wealth/insights/market-outlook/uk-in-focus/demand-weakness-price-pressures-and-policy-change/

2026-06-08 08:04

Key takeaways Middle East developments remain a key driver for FX, while US trade policy is back in focus following the USTR’s proposal. Attention is increasingly turning to the new Fed Chair’s policy stance and guidance ahead of the 16-17 FOMC meeting. Our base case continues to be a softer US dollar over the longer term, notwithstanding near-term event risk. Developments in the Middle East remain a key market focus. So far, periods of escalating tension have generally been associated with higher oil prices and a firmer US dollar, while any easing has tended to produce the opposite effect (Chart 1). At present, there is no clear assurance of a quick resolution, and ongoing supply disruptions across key commodities continue to weigh on sentiment. US trade policy is once more on the market’s radar following the 2 June announcement from the Office of the United States Trade Representative (USTR). The proposal outlines tariffs of 10-12.5% on imports from 60 economies under investigation for the alleged use of forced labour in relation to import controls. The plan includes exemptions, notably for United States-Mexico-Canada Agreement (USMCA)-compliant goods and further carve-outs may be introduced after the public consultation closes on 7 July. With the 16-17 June Federal Open Market Committee (FOMC) meeting approaching, attention is increasingly turning to how the new Chair of the Federal Reserve (Fed), Kevin Warsh, frames the policy outlook. Markets are becoming more sensitive to the risk of a more hawkish Fed, particularly given the recent run of upside surprises in US activity data. Any meaningful shift in the Fed’s tone would likely have direct implications for the USD. The last comparable episode of rapid hawkish repricing in Fed expectations − late 2024 – was accompanied by broad-based US dollar strength (Chart 2). Source: Bloomberg, HSBC Source: Bloomberg, HSBC Our base case remains that it would be surprising for the Fed to signal that it is preparing to raise interest rates, and we continue to anticipate a softer broad USD over the longer term. That being said, any indication that rate hikes are back on the table would likely warrant a more positive USD view. As such, we are approaching a critical juncture. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-at-a-crossroads/

2026-06-01 12:01

Key takeaways The USD is likely to remain range-bound over the near term amid geopolitics. The EUR appears to lack a clear directional path. The RBNZ’s hawkish hold has buoyed the NZD, while global risk sentiment dominates. The US and Iran have reached a tentative deal to extend a ceasefire by 60 days, pending President Trump’s signoff; the deal would require Iran to remove all mines from the Strait of Hormuz within 30 days (Bloomberg, 29 May). But, unless there is a clear resolution to the Middle East stalemate, the USD is likely to extend its recent sideways trend and remain range-bound over the near term. The geopolitical impasse is allowing other factors, alongside energy prices, to play a larger role in FX. Key theme: Interest rate differentials Over the coming weeks, interest rate differentials are likely to be the primary market focus. The Federal Reserve (Fed) is still shifting from dovish to more hawkish, whereas this transition is already largely priced in for Europe. This should help underpin the USD (Chart 1) but may not be sufficient on its own to trigger a sustained USD rally. EUR: Limited scope for a standalone move With a steady USD as the backdrop, there appears to be limited scope for a sizeable, EUR-specific move. Markets are pricing in around 60bp of the European Central Bank (ECB) hikes by year-end (Bloomberg, 28 May). However, with growing signs of weaker activity (Chart 2), it may be difficult for the ECB to deliver a path that is materially more hawkish than current expectations. The EUR reaction to a less hawkish ECB is uncertain − markets may favour growth support or reprice lower on carry considerations, but the balance of risks is to the downside for now. Source: Bloomberg, HSBC Source: Bloomberg, HSBC NZD: Policy expectations and risk sentiment The NZD is now in focus after the Reserve Bank of New Zealand (RBNZ) held rates at 2.25% on 27 May in a finely balanced decision, with a hawkish signal via a higher projected rate path (including a 25bp hike in 3Q26, at least one in 4Q26, and a gradual rise towards 3.3% by 4Q28). Our economists expect RBNZ tightening to begin in 3Q26, followed by another hike in 4Q26, and three additional increases, taking the policy rate to 3.50% by 3Q27. Market pricing is more hawkish, with around three hikes fully priced in by end-2026 (Bloomberg, 28 May). Beyond rates, the NZD should remain highly sensitive to global risk sentiment over the near term. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/usd-eur-and-nzd-geopolitics-and-rates/

2026-06-01 07:03

Key takeaways We expect the market rebound in April to continue as significant investments in AI, security and energy independence should keep activity going, supporting margins and earnings. However, the lagged impact of the Middle East conflict may create short-term volatility. To build portfolio resilience, we employ a multi-asset strategy and add alternative assets to enhance diversification. As high energy prices have raised inflation expectations, we favour the US and mainland China over oil-importing markets and prefer energy stocks to consumer staples stocks across regions. In addition to higher inflation and lower growth risks, political uncertainty over the UK government leadership and fiscal concerns weigh on UK gilts. As a result, we downgrade gilts to neutral and expect two 0.25% rate hikes by the Bank of England this year. The US-China summit concluded with a potential tariff reduction in “non-critical and non-strategic" areas, along with China’s purchases of aircraft, energy products and agricultural goods, as well as the establishment of a Board of Investment to boost China’s overseas direct investment in the US. The summit has helped restore some degree of business confidence and is aligned with China’s pro-growth stance. The improved bilateral relations further reinforce our overweight position on Chinese equities. https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/differentiation-matters-as-the-market-rally-continues/

2026-05-29 07:02

Key takeaways ^DXY = US Dollar Index, is an index (or measure) of the value of the USD against major global currencies, including the EUR, JPY, GBP, CAD, SEK and CHF. Source: HSBC https://www.hsbc.com.my/wealth/insights/fx-insights/fx-navigator/awaiting-catalysts/

2026-05-25 07:03

Key takeaways The CAD has not capitalised on higher oil prices… …probably because of Canada’s non‑US export constraints. JPY intervention may work if it comes alongside BoJ tightening and lower oil prices. FX puzzle 1: Why hasn’t the CAD gained much even with higher oil prices? Canada should, in theory, benefit from higher oil via improved terms of trade and energy revenues. In practice, Canada’s ability to monetise global price spikes is constrained by limited liquefied natural gas (LNG) and crude export capacity to Europe and Asia. As a result, a large share of Canadian energy exports remains US‑centric and often trades at a discount, reflecting pipeline bottlenecks and limited west‑coast egress. This structurally caps the CAD’s oil sensitivity: in FX, USD-CAD is typically driven more by broad USD (DXY) moves than by oil prices (Chart 1). Moreover, the largest oil spikes are often supply-shock events that coincide with risk aversion and USD strength, which can cap CAD upside. In today’s context, even if a prolonged Strait of Hormuz blockade pushes oil prices sharply higher, the CAD may not benefit much. Source: Bloomberg, HSBC *based on daily changes over last 20 years Source: Bloomberg, HSBC FX puzzle 2: Can intervention keep USD‑JPY below 160? The key lesson from 2024 is that intervention without policy follow‑through tends to lose impact quickly. In practical terms, intervention alone is unlikely to keep USD‑JPY below 160 for a prolonged period of time. It is more effective when supported by broader conditions − such as a Bank of Japan (BoJ) rate hike and lower oil prices − which together could help USD‑JPY grind lower over time. However, fiscal concerns may re-emerge and complicate the near-term outlook. These risks could surface in late May, linked to supplementary budget discussions, and/or in June, when Japan releases its annual medium‑term economic and fiscal policy guidelines, expected to be Prime Minister Takaichi’s first. Such developments could push long‑dated Japanese government bond (JGB) yields higher (Chart 2), reinforcing the view that underlying domestic pressures remain persistent. Overall, even with intervention, USD-JPY may struggle to establish a clear downward trend over the near term unless supportive policy and external conditions align. https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/fx-puzzles-cad-and-jpy/