The US dollar made strong gains at the end of last week as the Fed is set to raise rates this week, while the ECB will raise rates in July.
The Fed’s two-day meeting on Tuesday and Wednesday should see the Reserve increase interest rates by 50 basis points. The raise should be announced by Fed’s governor Jerome Powell on Wednesday at the end of the meeting. Cleveland Fed President Loretta Mester said at the beginning of the month that there is no evidence inflation has reached its peak, and as such she doesn’t expect central banks to stop rate increases after the summer if inflation keeps going up.
Markets remain fearful of a recession as the bond market is showing signs that the economy could be weakening. The forecast of what the Fed plans to do the summer and the autumn will give a better indicator of how the American economy is coping with soaring prices.
Last week saw the European Central Bank announce on Thursday that a rate increase is due in July. The announcement came after annual Consumer Price Index saw the Eurozone reach a record high of 8.1% in May. The ECB said it intended to increase interest rates by 25 basis points. A further increase in September is expected but the scale of the increase will depend on the evolution of inflation over the medium-term outlook.
GBPUSD fell as the dollar picked up strength on Friday ahead of this week's interest rates rise, after a second successive month where core CPI seemed to slow down but inflation picked up pace with data showing a year-on-year CPI of 8.6% for May, against 8.3% for April. GBPUSD opened at 1.2569 and close slightly under 1.2319 last week.
EURUSD followed a similar trend with the pair opening at 1.0735 and closing at 1.0516.
GBPEUR remained more stable as the pair opened at 1.1679 on Monday and closed to 1.1700 on Friday.
