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London RationalFX

RationalFX: All eyes on the Bank of England

RationalFX: The US Dollar stagnated yesterday in reaction to the Federal Reserve’s decision to begin unwinding its pandemic induced stimulus, announcing a $15bn monthly cut to its $120bn monthly purchases of treasuries and mortgage backed securities.

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USD

The Fed also gave little away in regards to when we expect an interest rate hike, only noting that they believe the current high levels of inflation are transitory and do not require a rapid rise in interest rates. Fed chair Jerome Powell did however state that this meeting will be the last one that is focused on quantitive easing, future meetings will return to their usual main topic of interest rate strategy.

GBP

All eyes are on the Bank of England today to see if they will be the first major central bank to pull the trigger and begin raising interest rates. Markets are very much expecting a rise today along with potential further steady rises throughout 2022. However, worries still remain that lower growth outlook and rising inflation will not be eased with an interest rate rise.

Currency markets will also look towards the split for the BoE vote. If the bank does indeed vote to hike rates but we see the vote splits very closely, we could only see a limited upside for the pound. Governor Bailey’s comments will also be closely scrutinised – hints at more efforts to ease price pressure would be seen as Sterling positive, a wait and see approach is likely to be Sterling negative.

Key announcements

12.00 – Bank of England’s interest rate decision

12.30 – Bank of England Governor Bailey speaks

13.00 – ECB President Lagarde speaks

Source : ETFWorld.co.uk

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