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Currency Market Update - 25th May 2023

Currency Market Update Federal Reserve members were divided yesterday at the FOMC (Federal Open Market Committee) minutes. The split of members thought ahead of their next interest rate decision in June.

Some members pushing for a further rate hike of 25 basis points in June stating that inflation levels are still highly elevated against their target of 2%. On the other hand you also had several members inclining towards a rate pause in June down to concerns of an economic slowdown. On that topic, growth figures are released later on today for the US.

Going back to concerns regarding economic output, it’s main concern is to look after the banking sector. We have already seen well-established banks in the US facing headwinds and a further rate hike would squeeze them further, in other words, the Federal Reserve needs to make sure there is enough liquidity in the financial system to cover its needs.

Worth mentioning is that from the FOMC meeting yesterday, they stated that the expression ‘some’ are more members than ‘several’, giving us an indication right now that a rate hike is in favour at the moment from the Federal Reserve.

The last weeks focus for the market has been the US debt ceiling and its participants to come to an agreement. So far there is no solution in place, with one week to go. Growing concern regarding a rising budget deficit that would have a serious effect on businesses and households, raising short-term borrowing costs for taxpayers and threating creditworthiness for the US. In other words a fear of recession for the US that would shake up the world economy. This has strengthen the USD in the last week against other currency pairs, as we know the greenback is the safe-haven currency.



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