Currency Note

Federal Reserve interest rate decision today

By Alex Bennett May 4th, 2022

The Federal Reserve will announce its latest decision on interest rates today following a two-day monetary policy meeting. It is widely expected that officials will raise the interest rate by half a percentage point and the markets will be listening for any comments on future action.

Sterling is slightly weaker against the euro and the dollar this morning, ahead of the Bank of England’s monetary policy meeting tomorrow. An interest rate hike is expected to tackle high inflation in the UK.

It was announced this morning that the EU is planning new sanctions against Russia. European Commission President, Ursula von der Leyen, has said that a sixth package of sanctions will be released in the coming days, which is set to include an oil embargo.

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GBP: Markets look to BoE meeting tomorrow

After recovering slightly against the euro and the dollar yesterday, the pound is weaker against both this morning. This is mainly due to a strong euro and dollar, however, uncertainty surrounding the Bank of England’s actions at its meeting tomorrow could also be weighing on sterling.

Mortgage data for the UK is expected later today, followed by PMI figures tomorrow morning. These will be released ahead of the Bank of England’s monetary policy meeting, which is due to take place around midday tomorrow.

It is thought that the BoE will raise the interest rate to 1%, taking it to its highest level since 2009. This is to temper high inflation. It is thought that officials will suggest that more hikes could occur over the coming months.

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EUR: Euro shrugs off poor economic data

The euro managed to gain some ground against the pound and other currencies towards the end of yesterday, despite poor economic data from Germany.

Data revealed that the number of unemployed people in Germany fell by 13,000 in April, which was less than expected. In the euro area, the unemployment rate dropped to 6.8% in March, which was below expectations of a fall to 6.7%.

Retail sales will be released for the eurozone later today, expected to fall month-on-month and year-on-year in March.

USD: Fed expected to hike interest rate

The dollar is stronger against the pound, and little changed against the euro this morning ahead of the Federal Reserve’s interest decision.

Later today, the Federal Reserve’s two-day monetary policy meeting will conclude. The Fed is expected to raise rates for the second time since 2018 by half a point, which would bring the interest rate to 1%.

It is thought that the interest rate hike is largely ‘priced-in’, so the markets will also be listening out for any comments about the possibility of more hikes in the future.

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