Liquidity Lens: Q2 2026

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In a landscape marked by continued macroeconomic and geopolitical challenges, we’re looking to offer insights into how treasurers can optimise their cash strategies for the months ahead. In addition, our monthly Central Bank update provides an at-a-glance view of recent central bank moves.

Our latest thinking on money market funds

Expert Insights: Liquidity as strategy

Chris Brown explains how liquidity is shifting from a defensive buffer to a strategic lever, with money market funds playing a more dynamic role for treasurers.

Same-day liquidity

Same-day liquidity matters, but it is not enough. Explore how money market funds can better support treasurers with precision, flexibility and reliable access to cash.

The importance of inflation protection

Why inflation may stay higher for longer, and what we believe investors should do about it.

Key indicators - Q2 2026

Europe

Rates – The US Federal Reserve (Fed) left the federal funds rate target rate unchanged during the quarter at 3.50%-3.75%.
Inflation – Year-on-year CPI inflation rose slightly to 3.5% over the quarter, but declined from an intra-quarter high of 4.2%.
Growth – US GDP growth accelerated in the first quarter to 2.1%, up from 0.5% in Q4 2025 and ahead of initial estimates of 1.6%.
Consumer confidence – According to the University of Michigan, fell sharply during the quarter, 53.3 in March to 49.5 in June, but recovered from May’s low of 44.8.
Unemployment – Year-on-year unemployment declined slightly over Q2, falling by 0.1% to 4.2%.

Rates – The Bank of England Monetary Policy Committee left the bank rate unchanged at 3.75%.
Unemployment – The year-on-year unemployment rate declined to 4.9%, according to the latest data.
Growth – Year-on-year UK GDP growth remained at 1.2%, according to the latest data.
Consumer confidence – The GFK Consumer Confidence Index fell to -23 by the end of Q2, down from -21 at the end of Q1.
Wage growth – Average annual wage growth, including bonuses, held steady at 4.1%.

Looking ahead

In the eurozone, we believe positive real wage growth in 2026 could support consumption, but savings rates remain elevated. Consumer confidence remains low as a consequence of the conflict in the middle-east and added to consumer expectations for inflation. However, the labour market appears to be resilient and the prospect of additional support coming from Germany’s expanded fiscal spending had added upside risks to the admittedly modest growth forecasts. We see GDP expanding by 0.7% in 2026 with an improvement to 1.2% in 2027.

Figure 1: ECB deposit facility rate

LL_ECB Chart Q2 2026.jpg

Source: European Central Bank, data as at 30 June 2026

We expect the ECB is likely to hike once more before allowing a pause as inflation begins to moderate, before easing policy gradually back toward 2%. We see 10-year German government bond yields close to current levels this time next year around 2.9%, with the curve steepening to some degree as shorter-dated yields fall back as inflation pressures reduce.

Figure 2: Market pricing of rate cut probability

Source: Insight and Bloomberg, data as at 6 July 2026.

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