Good morning,

Yesterday sterling reached pre-pandemic levels against several of its major counterparts, including the euro which broke the key 1.20 barrier. The pound also rallied against the US dollar as risk appetite in the markets changed following comments by Federal Reserve Chair Jerome Powell who said it may take several months to decide on running down the central bank’s $9 trillion balance sheet. Powell said the U.S. economy was ready for higher interest rates and a runoff of its asset holdings – dubbed quantitative tightening (QT) – to combat inflation. He did, however, say  policymakers were still debating approaches to reducing the Fed’s balance sheet, and that it could sometimes take two, three or even four meetings for them to make such decisions.

Powell said the world’s largest economy “no longer needs or wants” the huge financial support it has received during the pandemic, adding that policymakers must be “both humble and a bit nimble” in the face of surging price growth. However, he warned that “high inflation is a severe threat to achieving maximum employment and to achieve the long expansion that could give us that.”

Have a great day.

Author: William Jones, Senior Relationship Manager.

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