Fed raise 50bps, now eyes on BoE
US Fed did raise rates 50bps yesterday, the largest such raise since 2000. Two further 50bps rate rises are on the agenda, while the Fed also confirmed balance sheet reduction from June. There were no dissenters. Despite the unanimous decision and the near certainty that rates will continue to rise sharply, the US dollar actually sold off. Perhaps the market was disappointed it was not even more hawkish, maybe a 75bps rise for example, although Powell did say 75bps is not something the Fed is really considering at the moment. Powell mentioned that inflation has surprised to the upside, and there could more surprises to come. Some thinking a 75bps raise next time is off the table, I’m not so sure.
EURUSD traded up to 1.0625 after the announcement, and tested a little higher to 1.0640 overnight although this morning it did dip back below 1.0600. It sits on that level now. GBPUSD also saw a push higher and reached 1.2635 overnight, but is currently 100 pips below those highs at 1.2535. With EUR holding most gains but GBP struggling, EURGBP is now 0.8450 (GBPEUR 1.1835).
UK rate announcement today where a 25bps rate rise is widely expected and must be priced in, taking rates to a mighty 1%, unbelievably the highest since 2009. I guess the fate of GBP is more dependent on the tone of the statement regarding future rates moves. It will also be interesting to see how many members vote for a rise, there is a strong feeling that two will vote against a rate rise, if it turns out to be unanimous we should see support for GBP. We have local elections today as well, never sure what impact they will have on the markets but if the Conservatives perform as poorly as many expect it can’t be a good thing.
USDCNY fixed 6.5672 on its return from holidays, which looks a little on the low side given it appears to be trading well above 6.6100. Weaker than expected caixin services PMI number overnight seems to show the impact caused by the latest Covid lockdowns. Meanwhile in Hong Kong, the HKMA raised rates 50bps which goes a long way to show they are sticking to their peg, something as you know I’d rather hoped they might adjust.
Following on from BPs profit announcement earlier in the week, Shell have now reported its highest ever quarterly profit at £7.3bn, almost three times the profit reported this time last year. Like BP, it wrote down a chunk on pulling out of Russia but these profits are likely to see a greater push for some sort of windfall tax. I am reminded that most pension pots will be holding Shell stock so if, as thought, profits will be paid out in the form of a higher dividend, I guess we all stand to benefit anyway. Happy days!
Finally, congratulations to Real Madrid for making it through the Cahmpions League final, but really for the neutral observer, congratulations to both Ream Madrid and Man City for putting on two of the best semi-final legs ever seen in the competition, perhaps only bettered by Spurs win over Ajax back in 2019. I’m slightly biased of course.
- 07.30 CHF CPI
- 09.30 UK services PMI
- 11.30 ECBs Lane speaks
- 12.00 BoE rate announcement
- 12.30 BoE press conference
- 13.30 US initial jobless claims
- 14.40 BoCs Schembri speaks
- 00.30 Japan Tokyo CPI
- 02.30 AUS RBA monetary policy statement