The pound fell sharply against the dollar following the US Federal Reserve’s interest rate increase last night.
Against the euro the pound strengthened initially then gently declined through the afternoon. Sterling’s new strength followed President Putin’s escalation of the Ukraine war, which triggered the euro to weaken against both currencies. Against the dollar however, sterling made dramatic losses over the course of the day in the run up to and after the Federal Reserve’s interest rate decision.
Interest rates are the popular event this week as central banks continue to tackle rising inflation. This afternoon, the Bank of England will decide on its latest rates following its last hike during August’s monetary policy meeting. Last month the Bank raised interest by 50 basis points to 1.75%, its highest rate in 27 years. Markets have priced in another increase for today’s rate and are expecting interest to hit 2.25% or even 2.50%.
Vladimir Putin announced the mobilisation of troops and warned that Russia would use its nuclear weapons if its “territory” came under threat. Jens Stoltenberg, a Nato secretary-general, said that Putin “knows very well that a nuclear war should never be fought” and furthermore “cannot be won”. Furthermore, Us president Joe Biden said Putin’s nuclear threats against are “outrageous acts”.
Yesterday, market’s saw the Federal Reserve raise US interest by 75 basis points to 3.25%, in line with predictions. This most recent hike has subsequently pushed US borrowing costs to their highest levels in 14 years.
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GBP: Markets anticipate biggest interest rate hike in 33 years
Sterling remained choppy against the euro throughout yesterday but fell dramatically against the dollar in the lead up to the Fed’s interest rate decision around 7pm UK time.
Today, all eyes will be on the BoE’s upcoming interest rate decision, as markets await what could be the UK’s highest rate hike in 33 years. The Bank of England is expected to raise the UK’s main interest rate to 2.25% in their monetary policy meeting at lunchtime. The anticipated hike follows August increase to 1.75% and is predicted to be the seventh consecutive rate hike, pushing borrowing costs to their highest level in 13 years.
Tomorrow, the UK’s Gfk consumer confidence reading will be released. The upcoming data is forecast to fall to a gentler -35 (following -44 in August) as households continue to battle the rising cost of living.
GBP/USD over the past year
EU: euro still weaker against dollar following yesterday’s fall
Putin’s acceleration of the war in Ukraine yesterday morning saw the euro fall against both currencies, as markets looked to currencies such as the dollar as a ‘safe-haven’.
The euro remains weaker against the dollar this morning (after shooting up briefly in the run up to the Fed’s interest decision), but has made gentle gains against the pound since last night.
At 3pm today, the eurozone will release the latest data on consumer confidence which is expected to dramatically decline following last month’s increase. Consumer confidence fell to a record low of -27 in July (in line with market expectations) before increasing to -24.9 in August. For September’s data, a -29 decrease is currently predicted, suggesting a return of a ‘pessimistic’ economic outlook among eurozone consumers.
The current eurozone energy crisis, ongoing war in Ukraine and boosted inflation are likely to be contributing factors in the expected lowered consumer confidence.
US: Federal Reserve raise interest by 75 basis points
The dollar strengthened against sterling to a new 37-year high yesterday around the Federal Reserve’s highly anticipated interest rate decision. This morning however, it has slipped back fractionally.
America’s latest existing home sales figures revealed the annual sales rate had fallen to 4.8 million. The fall was slightly larger than the 4.7 million markets had priced in, but fell in line with expectations of a seventh consecutive decline for sales.
This drop in home sales reflects the current rise in US mortgage rates which is likely to continue rising, following the Federal Reserve’s latest interest rate decision yesterday. Market’s saw the Fed raise interest by 75 basis points to 3.25% (as anticipated), seeing US borrowing costs hit their highest levels in 14 years.