17/03/2022 – Exchange Rates
- Posted by currencies in Rate Alerts
- March 17, 2022
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Yesterday evening saw the first of 2 Central Bank policy meetings with The Fed Reserve moving forward with a rate rise of 25 bps, the first rate hike taken by The Fed since 2018. With inflation currently sitting near 8%, a 40 year high, and inflationary pressures effecting prices and potential supply of commodities such as Oil, Gas & Metals, The Fed have moved quickly to try and combat any further pressures from Russia’s invasion of Ukraine. Expectations suggest inflation for The U.S will continue to be above the 2% target, falling only to 4.3% by the end of the year. Interestingly, Fed member Bullard had voted for a 50 bps hike, which now opens the debate for a 50 bps hike in their next meeting on May 4th.
The tone from The Fed after the decision seems to hint that they could raise rates in each of their six remaining meetings throughout 2022, with the target for interest rates now sitting at 2% by December 2022. Surprisingly however, GBP/USD continued to climb towards 1.32 after the meeting with hopes that a breakthrough in peace talks between Russia & Ukraine saw investors retreat from safe-haven assets. Ukrainian president Zelenskiy stated negotiations were becoming more realistic, as well as Russia saying proposals under discussion were close to an agreement.
Later today brings the 2nd Central Bank policy from The Bank of England, rates are currently at 0.5% and expectations are largely backing another 25bps hike which will be the 3rd in a row following hikes in both December’s and February’s meetings. The economy in The UK is currently being pulled in two directions, one being that inflationary pressure was already strong before the Russian invasion of Ukraine and households facing the biggest squeeze on income for half a century. As this year continues, households are expected to have to go up against higher energy bills, higher food prices as well as higher taxes off the back of the pandemic.
Only 3 weeks ago, before Russia invaded Ukraine, speculation was building towards the Bank of England raising rates by 50 bps this month to combat rising inflation which currently sits at 7%. This now looks less likely given the surge in prices of Oil & Gas, and the path for rate hikes now seems more sensible to be gradual increases of 25 bps at a time, starting with today’s meeting and followed up in May which would take The UK to rate of 1%. Any forward guidance from Andrew Bailey after the rate decision will be key as The Bank of England have expressed their desire to have rates at 1.5% by year end.
GBP/EUR 1.1920 GBP/USD 1.3150 GBP/AED 4.8240
GBP/AUD 1.7965 GBP/CHF 1.2356 GBP/CAD 1.6668
GBP/NZD 1.9240 EUR/USD 1.1025 GBP/ZAR 19.650
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