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All eyes on BoE meeting after US Fed hikes rates by 75bps

All eyes on BoE meeting after US Fed hikes rates by 75bps

Yesterday saw monetary policy very much in focus as the ECB convened an ad-hoc meeting, to discuss current market conditions. It announced that PEPP proceeds will be applied flexibly across the eurozone to help economies struggling the most. The euro, which had been on the defensive recently briefly rose above $1.05 against the dollar. However, the move could not be sustained. Indeed, the single currency finished the day on the back -foot. Elsewhere, sterling reversed its losses from the day before.

Overnight, the focus shifted to the US Fed, the central bank hiked interest rates by 75bps, as had been speculated earlier in the week. The latest interest rate dotplot shows that the Fed now expects rates to rise to 3.4% before year end as it tries to rein in soaring inflation. There was a relatively limited reaction from the dollar to the Fed meeting.

At the open this morning, EUR/USD was broadly unchanged from 24hrs earlier, down in the lower half of $1.04-1.05, GBP/USD was back above the $1.21 threshold, and EUR/GBP back down below 86p. This being said, sterling weakness seemed to be creeping in at the time of writing.

As we look to the day ahead, all eyes will be on the latest BoE meeting. The BoE is expected to hike by 25bps again, although, the appears to be divided opinions on the outlook. Therefore, market attention is likely to centre on the BoE’s forward guidance regarding further rate hikes. As a result, there could be some volatility for sterling today.

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