The Bank of England increased interest rates by 50 basis points to 5.00% at the latest policy meeting. Consensus forecasts were for a 25 basis-point hike, although there had been growing expectations of a 50 basis-point hike following the latest inflation data. There was a 7-2 vote for the decision with Tenreyro and Dhingra again voting for no change in rates. The majority on the committee were concerned over inflation pressures, especially with the risk of secondary inflation pressures and upward pressure on wages. Governor Bailey was keen to emphasise that wage increases at current levels could not continue.
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In its latest update, the German IFO institute stated that the German downturn will be steeper than expected. It now expects GDP will contract 0.4% in 2023 compared with previous expectations of a 0.1% decline. As far as inflation is concerned, it expects a 5.8% rate this year with a decline to 2.1% in 2024. ECB rhetoric remained under scrutiny. Council member Schnabel stated that domestic inflation is being driven by profits and wages. Bundesbank head Nagel commented that he is confident that inflation will come back to the 2% target. He did, however, add that there is still a long way to go before then.
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The US Dollar (USD) initially lost substantial ground against most major currencies like the Euro or the Swiss Franc as US Fed Chairman Jerome Powell communicated to the markets that more than one rate hike will be needed to get inflation back to 2%, and is reversing those losses after the jobless claims numbers. Investors earlier got spooked by this as some economic datapoints have been deteriorating under the current elevated rate level from the Fed, and more hikes could tilt the US economy into a full recession. Equities are off the lows and could flip into positive numbers territory should the US session continue this recovery move
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