The pound has fallen against the euro following the Bank of England’s decision to raise interest rates to 0.75%.
While this rate hike was largely expected, the Bank issued a cautious message to markets around future hikes. This caused markets to re-evaluate, sending sterling lower.
The euro continues to struggle due to the lack of progress with Russia-Ukraine peace talks. Russia has now targeted an aircraft facility in western Ukraine, the closest strike to the city of Lviv.
In a phone call between Turkish President Recep Tayyip Erdogan and President Vladimir Putin yesterday, Putin laid out his demands for a peace deal with Ukraine. These include Ukraine reducing its military, promising not to join NATO and giving up some territory close to the Russian border.
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GBP: Bank of England raises interest rates to 0.75%
The pound has fallen significantly against the euro but is stronger against the dollar following the Bank of England’s decision to increase interest rates.
The BoE raised rates from 0.50% to 0.75% to try and tackle the rising cost of living in the UK after predicting that inflation could rise to around 8% later this year.
Monetary Policy Committee (MPC) members voted 8-1 in favour of this 25 point rate hike; however, the Bank issued cautious guidance around future hikes, saying that the market’s expectation for the Bank Rate to reach 2% by the end of the year was extreme. This caused markets to re-evaluate, sending sterling lower.
It’s a quiet day for data releases today but the UK’s latest inflation figures will be released on Wednesday next week. Markets continue to eye the Russia-Ukraine situation.
GBP/USD chart over past year
EUR: Lagarde says ECB needs to be flexible with monetary policy
After strengthening yesterday, the euro has lost some of its strength against the pound and the dollar as the lack of progress with Russia-Ukraine peace talks continues to cause anxiety in the markets.
Speaking yesterday, President of the European Central Bank Christine Lagarde warned that the Russia-Ukraine war could push inflation higher in the short-term and that the Bank needs to be flexible with monetary policy.
Inflation for the eurozone rose to 5.9% year-on-year in February, up from 5.1% and slightly exceeding expectations.
USD: Dollar sees some recovery against euro
The dollar remains weaker against the pound but has regained some strength against the euro in the aftermath of the Federal Reserve’s decision to raise interest rates for the first time since 2018.
Other data releases for the US revealed that building permits fell 1.9% month-on-month in February but housing starts increased 6.8%. The Philadelphia Fed Manufacturing Index rose to 27.4 in March, above market expectations of 15 and the highest reading since November.
Today, existing home sales figures will be released and several Fed officials will speak.