Fighting inflation is the core focus

For the video brief, please click here (there is a garbage truck stuck in a ditch this morning!)

MPC look likely to deliver three in a row

Silvana Tenreyro is a member of the MPC and she feels they have a collective responsibility over any policy changes, with some difficult decisions to make, given the volatility in the markets.

The UK economy is still recovering from the Pandemic and inflation is still way above the 2% target and is expected to rise further. They voted for rate hikes at the last two meetings and they may well vote for a third this week, but the economy is slowing and household budgets face further pressure from Sunak’s plan to increase national insurance and lift the energy price cap.?

Market expectation is for the Bank to fight inflation at the expense of growth. Another 0.25% rate hike looks almost certain this week, but despite any support expected from higher interest rates, Sterling remained under pressure yesterday as the war related dollar rally continues.

We fell to 1.30 against the dollar and slipped to 1.1875 against the Euro.?

Will the Fed disappoint dollar bulls?

The Fed meeting started in the US yesterday.?It is widely accepted that they arrived late to the party, but their focus is now firmly on tackling inflation.

While any rate hike is normally supportive for the currency, the Fed action has been so well covered (and so delayed) that, if anything, it has introduced downside risk for the dollar. There are still firm pockets of opinion that feel a 0.5% rate hike would be the best way to start, so if the vote only results in a 0.25% rise, it may disappoint some dollar bulls.?Don’t forget the safe haven trade though, that is still driving much more dollar demand than normal.

The dollar index moved up to 99.30 yesterday.

Lagarde needs to wake up to inflationary threat

The ECB finally bowed to the pressure being exerted by rising inflation and decided that the extraordinary support, which has been in place since the start of the Pandemic, would begin to be tapered and end before year-end.

Christine Lagarde was firm in her assertion that rates won’t rise this year and she tried to remain vague about the timing of any rate hike. She remains concerned about the economic outlook and would favour a slower taper, hoping that inflation will begin to fall naturally, but that is pretty unlikely given how the cost of energy is hurting the Eurozone.

The euro has been the most affected currency following the Russian invasion of Ukraine. and EUR/USD opens around 1.0975.?