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Markets wait on interest rate movements

Markets wait on interest rate movements

German labour-market data unemployment reduced by 13,000 after an 18,000 decline last month. Russian “victory day” on May 9th has generated concerns of further escalation in Ukraine with the pressure to show results.

ECB council member Schnabel stated that the central bank may need to raise interest rates in July to combat “extreme inflation” and that “it was time to act”. The Euro peaked near 1.0575 before sinking to near 1.0515. 

UK manufacturing PMI edged up with growth in new orders and but with significant weakness in export orders stemming from weak demand in the Eurozone. However overall business confidence dipped to a 16-month low which reinforced unease over developments.

Sterling peaked around 1.2565 to the dollar but with weak underlying confidence remained fragile and Sterling was unable to sustain the gains and fell back to 1.2500. The Euro crawled to 1.1883 despite solid risk conditions. 

Tonight the Federal Reserve will likely announce an interest rate rise of 0.5%. Futures markets indicate a small chance of a 0.75% increase, but that would likely cause ructions across other financial markets. The rhetoric used discussing and forward guidance from Fed Chair Powell will be key, with reference to growth risks the only hope of a weaker Dollar. By comparison the Bank of England is widely expected to raise interest rates by 0.25% on Thursday, but markets expect a dovish hike which will fail to support the Pound. Sterling opens below 1.2500 this morning with the Euro just above 1.1876.

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