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Fed looking for more evidence before slowing rate hikes

The US Federal Reserve lifted the base rate by 50 basis points yesterday to a level of 4.5% and forecast that their base rate would rise to 5.1% within the year. They also stated that they would need to see more evidence of inflation coming under control before they started to ease the pace of interest rate hikes. There is nothing particularly surprising about their point of view, hence the US dollar remained in the similar trajectory to the previous day. The GBPUSD rate is holding up at 1.2370 ahead of the Bank of England rate decision and the EURUSD rate is only half a cent off its highs at $1.0640 ahead of the ECB meeting later on. So, although we will see retail sales, the weekly jobless claims numbers and some manufacturing sentiment indices from the US today, the main drivers in these particular exchange rates will be central banks on this side of the Atlantic.

50 BP hikes expected from BOE and ECB

As mentioned above, we will see interest rate decisions from both the Bank of England and the European Central Bank today. The markets are expecting both banks to deliver a 50 basis point hike, bringing the UK base rate up to 3.5% and the ECB base up to 2.5%. As with yesterday’s US rate decision, the devil is in the detail of the statement issued with the announcement. All central banks are in the same quandary; have they done enough to curb inflationary pressures or have they done too much, damaging any fragments of economic growth that remain in spite of the best efforts of Russian troops and energy companies. The UK faces the additional problem of large-scale public-sector strikes. For now, the GBPEUR rate is pretty static at €1.1635.

NZ GDP beats forecasts

The markets had been expecting New Zealand’s economic growth data for the third quarter of the year to reflect a slowdown from the previous quarter’s 1.9% growth. So the quarterly growth figure of 2.0% came as a very pleasant surprise and should have strengthened the New Zealand dollar. However, data showing a significant slow down in Chinese industrial production appears to have overshadowed that data. China remains a major consumer of raw materials from the region, it is Australia’s number one export market and Australia is New Zealand’s number one export market. Hence the repercussions. So the GBPNZD rate is still climbing. It is up to nearly NZD 1.93 this morning and, other than a couple of spikes, it hasn’t been above here since the end of November. The BOE interest rate decision will play a part here, as will the purchasing managers index due for release from NZ overnight. 

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