Gentium FX | Daily Report - 4th May 2023 - Federal Reserve Raise Interest Rates, ECB Decision in Focus

GBP: The Pound has managed to keep most of its strength against the Euro and Dollar but has lost ground against other currencies such as the Australian Dollar, New Zealand Dollar, and Canadian Dollar. UK final services PMI figures as well as mortgage approval numbers are due at 9:30am which may cause some short-term volatility. However, with a lack of economic releases yesterday, the market has been more focused on interest rate decisions in Europe and USA. As we approach next week’s Bank of England interest rate decision, it is likely the Pound may experience more movement.

EUR: The European Central Bank is expected to increase interest rates by 25 basis points, though some policymakers suggested a possible 50 basis point hike could be on the cards. However, recent economic data and comments have led the market to anticipate a smaller increase. A 50 basis point hike would be a significant surprise but is unlikely. A 25 basis hike with confirmation of future increases would likely support the Euro. However, if the central bank does not commit to another rate increase at the upcoming meeting, the Euro could face renewed pressure.

USD: Last night, the Federal Reserve raised interest rates by 25 basis points to 5-5.25% as expected but did not suggest that future rate increases are likely. During the press conference, Chairman Powell did not commit to pausing rate hikes in June but stated that they were not planning to cut rates this year. As a result, the CME Group FedWatch Tool is now indicating that there is virtually no chance of another rate hike in June. Overall, the Dollar remains under pressure across the board.?

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