Sterling held a firm tone after Wednesday’s European open with a gradual advance higher against the dollar and Euro. Expectations that the Bank of England would continue to raise interest rates beyond peak rates from the ECB and Federal Reserve continued to provide some support for the UK currency during the day. There was little overall impact from global risk conditions during the day, although UK equities edged lower. The ECB policy decision and policy guidance will be important for Sterling on Thursday.
No Key Data
Euro-Zone M3 money supply growth slowed to 0.6% in the year to June from 1.4% previously and below expectations of 1.0%. The Euro was able to resist any further selling pressure ahead of the Federal Reserve policy decision and edged higher against the dollar as the US currency failed to make any headway. There are strong expectations that the ECB will hike interest rates by a further 25 basis points at Thursday’s policy meeting. Forward guidance from the bank will be watched very closely and will have an important impact on the Euro with choppy trading likely.
Key Data
13.15 ECB Interest Rate Exp. 4.25% Prev. 4%
13.15 ECB Deposit Rate Exp. 3.75% Prev. 3.5%
13.15 ECB Monetary Policy Statement
13.45 ECB Press Conference
The Federal Reserve increased interest rates by 25 basis points at the latest policy meeting which was in line with consensus forecasts and the vote on the committee was unanimous. The statement overall was little changed from the previous meeting with comments that the committee will take account of the cumulative tightening of monetary policy, the lags with which policy affects economic activity and inflation, and economic and financial developments in determining the extent of any further monetary tightening that might be appropriate. The immediate reaction was very limited with the dollar marginally weaker. Fed Chair Powell stated that the impact of monetary tightening was being seen, but it would take time for the full effects to be seen. Powell insisted that the Fed was not set on hiking at every other meeting with the Fed data dependent and watching the data at every meeting. In this context, it was possible that rates could be increased again in September or leave rates on hold. He noted that there are two labour-market reports and two consumer prices inflation reports ahead of the September meeting with the releases very important. Powell stated that policy is restrictive and that there are risks in doing too much or too little on monetary policy, but he also noted that staff are no longer forecasting a recession. The dollar edged lower during the press conference, but overall moves were limited as Powell reiterated the importance of incoming data.
Key Data
13.30 Gross Domestic Product Annualised (Q2) Exp. 1.8% Prev. 2%