Last night the Fed increased interest rates by the most in any one single move in 22 years, pushing the US rate corridor up to 0.75% – 1%. They also confirmed plans to reduce their balance sheet by selling assets monthly. The outcome of the announcement was a weaker US dollar and stronger stocks. The reason for these moves was the confirmation from the Fed chairman that a 0.75% move at the June meeting was not being considered. Markets had begun to price in such an increase and they had to reprice this last night, leading to USD selling. Moving forward, the greenback remains in the driving seat, last night’s new insight will unlikely derail the rally.
Today’s session sees focus on the Bank of England and its monetary policy announcement. The Bank is expected to increase rates up to 1% and will also provide its latest inflation report which should offer a gloomy outlook for the UK economy. All eyes will be on the pound at lunchtime. Stay tuned.
Written by Viv Savani. 8:11am, May 5th 2022
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