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  • richard evans

US rate rises may slow but will go higher for longer

Good morning

For this week, US data releases will be one hour earlier at 12.30 or 14.00 london time due to the clock changes.

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

Fed raised rates 75bps as expected yesterday to bring rates to 4%. For a while it seemed Powell had managed a dovish rate rise, saying Fed will take into account a possible lag in the economy;s response to rate rises and that they could start to dial back rate rises at future meetings. USD actually weakened a little initially and stocks were slightly positive. However he did then stress that there is still need for rate increases and his attention is perhaps more on how high rates can go, rather than how quick they get there. His comment that rates will ultimately peak higher than previously expected was the final straw and saw USD eventually move higher and stocks tumble.

US dollar continued to strengthen overnight and has made further gains this morning. As I type GBPUSD is down at 1.1280, nearly 300 points off yesterdays high. EURUSD was up near parity yesterday evening but now sits over 200 points lower at 0.9770, meaning GBP has lost ground this morning to the single currency, GBPEUR now at 1.1545, its lowest level for a week.

BoE will announce their rate increase today. Market seems set on a 75bps rise to take rates to 3%, as I mentioned earlier in the week this would be the largest single day rate rise since Black Wednesday in 2992. Whether a 75bps move can support GBP remains to be seen, I’d imagine the move itself is pretty much priced in but the voting may be important, whether the decision is unanimous or whether we see any dissenters. A 6-3 vote for example is likely to be looked upon as dovish, as would a 50bps rise, which does still have an outside chance. As always we’ll watch for any forward guidance but my comfortable 1.1500 level looks a long way off for now.

China Covid cases continue to rise and lockdowns widen, with the China health committee confirming they will resolutely adhere to the zero-Covid policy. North Korea fires more missiles including an ICBM according to some reports. In slightly more positive news, Russia has agreed to allow grain shipments from Ukraine to resume via the Black Sea, after their recent withdrawal from the agreement, a welcome u-turn.

It’s a rather wet start to Thursday, some reports of flooding in certain areas isn’t really a surprise given the deluge we’ve seen. It might dry up for a bit this afternoon but I’m not heading outside any time soon, instead I’ll just watch the wet leaves pile up on the lawn and wonder when I’ll get a chance to collect them up. Not for a few days looking at the forecast….

- 11.00 EU unemployment

- 12.00 BoE rate announcement

- 12.30 BoE press conference

- 12.30 US initial jobless claims, goods trade

- 12.30 CAD merchandise trade

- 13.45 US S&P services PMI

- 14.00 US services ISM< factory orders

- 17.30 BoCs Beaudry speaks

- 00.30 RBA MPS

- 00.30 AUS retail sales

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