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.
The US Dollar has strengthened further overnight after a continued standoff in negotiations surrounding the debt ceiling in The States. The current debt limit is $31.4 Trillion and concerns have been raised that a recession could be looming large in The US if no agreement can be reached.
The pound slipped against a strengthening dollar on Wednesday and maintained its losses after Bank of England Governor Andrew Bailey reiterated, he expected price pressures to ease, as soon as April.
Speaking at the British Chambers of Commerce Global Annual Conference, Bailey said that if price pressures were to be more persistent, further tightening of policy may be required, but added there were signs the labour market was loosening a little.
The pound dropped a little this morning after a rise in Britain's jobless numbers suggested fewer Bank of England rate increases could be needed in the coming months to bring down inflation, helping the broad dollar index to push back towards Monday's five-week peak.
The BoE delivered as expected a 25 bps hike last week with a relatively positive outlook, with a recession no longer on the cards in the UK and inflation expected to come down later this year. Unfortunately, this did not reflect well on the Pound, with GBPUSD falling to 1.24 down from 1.2680.
GBP continued its hot streak against both The EUR & The USD yesterday as both currency pairs hit one year highs, with GBP/EUR closing yesterday’s session just above 1.15, whilst GBP/USD had hit highs of 1.2680 earlier in the day due to their inflation figures for April coming in slightly lower than expected. Seemingly paving the way for The Federal Reserve to pause their rate hike cycle.
Sterling could rise as the Bank of England is likely to raise interest rates by 25 basis points to 4.5% as expected on Thursday and potentially signal further rate increases.
Last week was pretty eventful with both the ECB and the Fed confirming 25 bps rises as expected, the key takeaways is that the Fed will probably pause for now and the ECB plans to continue. Following the Fed meeting we saw Western Alliance’s bank shares drop pretty steeply overnight, reigniting concerns in the U.S banking sector, just minutes after the Fed reiterated how strong and resilient the U.S banks were.
