Market Update

This week we have seen markets show their full strength as we saw both the Fed and the BoE hike rates by 0.25% in attempts to battle inflation in both economies. Yesterday we say the Bank of England hike rates by 25 bps with an overall official vote of 8-1, in favour of the hike and the 1 official in favour of an unchanged rate for the bank. The message understood by the markets from this was fairly positive up until BoE officials led by Andrew Bailey softened their words on future rate hikes stating that a further tightening of policy “might be” appropriate in the coming months. This caused a knee jerk reaction on all sterling crosses, with cable trading at 1.3150 at the time of writing and pound euro trading at 1.1850.

Furthermore, the BoE also warned the squeeze on household incomes in the UK will be “materially larger” than feared six weeks ago. The next question is how does this affect rates? Realistically, we can expect cable to continue trading at lows as markets priced in ambitious rate hikes from the central bank which due to inflation fears, geopolitics & spending power squeeze will not go as previously thought out.

Over in Europe we saw CPI YoY for February peak at 5.9% as energy prices tilted the scale. Euro is trading higher at 1.0940. This had little to no effect on rates as all eyes were on the BoE which delivered an unexpected message to markets. Now, Russia went ahead and poured cold water on reports that progress was being made with Ukraine. As it stands no one really knows where Russia-Ukraine are at.

Building permits in the U.S came out positive as well as initial jobless claims so the labour market in America remains strong.

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