Market Update

Interest Rate raises are the topic of conversation at the minute with a focus on The European Central Bank & The Fed Reserve. ECB Governing Council Member Martins Kazaks commented yesterday stating the need for a 25 bps hike as early as July due to concerning rises in inflation, which currently sits at 7.5%.

Markets are now pricing in more than a 50% chance of a 25 bps hike in July, with a further two 25 bps hikes both in September & December of this year. These comments have seen The EUR recover ground above 1.09 against The USD and has seen GBP/EUR lose nearly a cent off the back of these remarks.

It should be taken into consideration, a lot can change in the mindset of a Central Bank within 3 months so speeches over the coming weeks from Legarde will no doubt have some weight on markets pricing these hikes in. On top of that, the Ukraine/Russia situation will no doubt impact Europe as we’ve seen since the war took place nearly 2 months ago.

Over in The States, The Federal Reserve’s Mary Daly more or less expressed a confirmation for The Fed to raise rates by 50bps in their next meeting, with a view to hiking rates to 2.5% by the end of the year. Consequently, markets are now pricing a 50bps hike in May’s meeting at 99.6%. The bigger question will be focused more around what guidance is given for future meetings. A big influence for this will be the inflation report to be released a week after The Fed Reserve’s rate decision.

Later today see’s The Euro-Zone release their inflation figures which as we know should reach 7.5%, any surprises will possibly cast doubt or further consolidate the need for a rate hike as soon as July. More importantly, over the next 48 hours we have several speeches for The ECB, The Fed Reserve & The Bank of England, which could see members touch on inflation and potentially signal further hikes throughout this year.

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