Good morning,

Yesterday the Federal Reserve left interest rates unchanged as expected. Nevertheless, the Fed did signal the beginning of the end of the historic bond-buying stimulus program which propped up the economy during the global pandemic. However, the rhetoric used was that that the tapering of bond buying will be gradual. The Fed also touched on the previous stance of transitory inflation and cited that the transition period may be longer than previously anticipated, transitory nonetheless, with the Fed Chair Jerome Powell saying current inflationary pressures would not leave a permanent mark on prices and inflation. On the interest rate front, Powell expressed his willingness to act on interest rates and said “if we need to raise rates, we’ll be patient but not hesitate”. In other news the ADP Non-Farm employment change figure printed positively at 571k against an expectation of 400k.

On the continent there was a divergent in the message with the ECB’s Governing Council member Francois Villeroy de Galhau saying there was no need for the ECB to raise rates in 2022. The ECB has stuck to this tone throughout the global pandemic despite both the Fed and Bank of England citing an appetite to contract the monetary policy. Naturally, the single currency came under some pressure with EUR-USD moving lower following the comments. The Euro has for many years maintained an expansionary monetary policy so this did not come as a surprise. Market participants are more keen to hear the guidance regarding the PEPP (Pandemic Emergency Purchase Program) and what the road map for tapering of the purchase facility will or could look like.

In the UK all eyes are firmly focused on the BoE and the Super Thursday meetings at midday today. The pound has come under some pressure in recent weeks but posted gains against the dollar and the euro yesterday edging closer to the 1.37 and 1.18 level respectively. The expectation is currently for the Old Lady of Threadneedle Street to raise interest rates with a 0.25% interest hike being widely discussed by market participants.

Outside of the aforementioned ‘Super Thursday’ meetings the data front looks light with the US Non-Farm Payroll figure on Friday being the next key data set.

Have a good day.

Author: Joshua Nagenthiran, Senior Relationship Manager

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