Federal Reserve to hike but by how much?

Today’s headlines story is the decision by the US Federal Reserve to raise interest rates. It appears to be a foregone conclusion that they will hike the base rate, which sits at 0.5% at the time of writing. The general consensus is that this will rise to 1.0% today but there is the potential for the Fed to be very bold and hike by 75 basis points. The US dollar is looking strong ahead of this decision but it probably won’t strengthen significantly if the Fed goes for a 50 basis point hike. The likely outcomes are not as binary as they might seem. If they raised by more than 50 basis points, we can’t assume the USD will strengthen because the statement that accompanies the decision will determine whether this is a one-off or part of a longer-term strategy. Equally, if they undershoot the forecasts but add in caveats of a more rapid pace of interest rate rises in the future, we might still see the US dollar strengthen. GBPUSD starts the day at $ 1.2505, just a quarter of a cent above the overnight low.

NZ unemployment rate stays at a record low 3.2%

New Zealand’s unemployment rate remained at a record low of 3.2% at the end of the first quarter of the year. However, wage-price inflation pushed up to 3.1% in the same period. When candidates are scarce, that is fairly inevitable. Although the GBPNZD rate slipped back down to 1.9350 on the news we have seen this pair bounce this morning nearly a full cent to NZD 1.9440. We will see some UK mortgage and lending data this morning but the big story will be tomorrow’s Bank of England interest rate decision. Traders are likely to remain fairly passive until that happens.

Eurozone retail sales awaited

the president of the European Central Bank, Christine Lagarde, has asked members of the ECB to hold back on criticism for the time being. Some would say there’s a lot to criticise, with the ECB holding back on interest rate rises whilst most other central banks are attempting to normalise interest rates. Mrs Lagarde pledged to build consensus within the ECB when she came into office but that is proving a tough challenge. Meanwhile, euro traders await the eurozone retail sales data and some Purchasing Managers Indices this morning. The GBPEUR rate has fallen ¾ of a cent to €1.1875 while Sterling traders await the BOE decision tomorrow but the EURUSD rate remains under pressure at $1.0510 this morning.

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