Yesterday, the US Federal Reserve hiked the base rate with 0.25%, as widely expected.
Its UK counterpart will likely announce a similar sized hike, deciding to increase the base rate to 0.75%. As this is very likely also ‘in the price’, investors will be looking at the language used to extract clues about a future course. Some sterling selling ahead of the event betrays the market’s belief that a cautious tone will be struck.
Should this be proven wrong, it could provide some counterweight to the euro strength of recent days, though whether this is enough to push it back to the 1.22 highs remains to be seen.
Optimism around potential peace talks for the Ukraine conflict have kept the euro supported, as markets hope for a quick resolution.
The same dynamic has helped EUR/USD maintain its steady gains, as it benefits both from a stabilisation in the single continent (on the EUR side) and a reversal of the ‘safe haven’ flows which have been a source of USD strength.
Have a great day.
Thomas De Caluwé, Relationship Manager.
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