The U.S last night raised their interest rates by 25-basis points as was widely expected, culminating in the first interest rate increase since July 2023 in a bid to control continual price rises. Fed Chair Kevin Warsh put the rate increase down to the fact that prices have been too high for too long, with markets now pricing in a further 25-basis point hike later in the year at a 90% probability.
Crucially all 12 eligible voting members of the Federal Reserve voted in favour of the rate hike, pointing to the fact that global economic factors mainly influenced by the continued climb in Oil prices have continued to push inflation considerably higher than the 2% target. Federal Reserve Chair Kevin Warsh also stated that the move was sensible, considering inflation has been above their target for the past 5 years. There was some backlash from Donald Trump who has been against rate hikes, so the next question will be whether the next rate hike comes in October’s meeting or left until after the mid-term elections which take place in November.
Keeping with central bank decisions, we have the Bank of England coming up at Midday. Expectations should see the rate left unchanged for the sixth consecutive meeting, but traders and analysts will be keeping an eye out for any indication towards future rate hikes before the end of the year. Especially after UK Inflation climbed back above 3% earlier this week, on top of the energy price cap set to increase from October.
Either way, volatility is expected this afternoon across a variety of outcomes. The most likely would see the rate left unchanged, but the voting split across members signalling an intention to hike rates could bring Sterling strength.
GBP/EUR 1.1656 GBP/USD 1.3460 GBP/AED 4.9460
GBP/AUD 1.8887 GBP/CHF 1.1018 GBP/CAD 1.8756
GBP/NZD 2.3396 EUR/USD 1.1532 GBP/ZAR 21.8259