Yesterday saw the US Federal Reserve raise its key interest rate by 0.75 percentage points, lifting it to 4%, which is the highest rate since early 2008.
The FED hopes that by raising rates it will cool the economy and bring down price inflation, however, critics are worried the moves could trigger a serious economic downturn, forcing the US into recession.
Jay Powell from the US Federal Reserve warned US interest rates will rise to a higher level than previously expected, and even though they may slow down the pace of the hikes, it was premature to think they would stop now, and they had ‘some way to go’ to hold back soaring prices and make a dent in inflation.
Eurozone manufacturing PMI figures fell to a 29-month low of 46.4 in October, a further retraction from the 48.4 posted in September indicating that the sector is in recession.
The dollar weakened initially after the FED announcement, pushing GBPUSD to around 1.1550 and EURUSD to 0.9965, however, Powell’s comments regarding continued rate hikes strengthened the dollar which saw it reach 1.1381 against the pound and 0.9811 against the Euro.
GBPEUR remained rangebound throughout the day between 1.1594 and 1.1636.
The BoE is expected to raise borrowing costs by 75 basis points today, taking the main interest rate to 3%.
Some strategists think an impending recession will prevent the central bank from raising interest rates to the 5% level that financial markets are currently expecting by next year. That could be a problem for sterling, as expectations of higher rates generally attract investment for fixed-income products as they produce a higher yield.
The pound is down this morning across the board as investors predict that the BOE may be more Hawkish during the MPC announcement today.GBPUSD resides at 1.1250 and GBPEUR 1.1530. EURUSD has also weakened further and sits at 0.9763