Last night, the U.S. Federal Reserve announced they would keep interest rates on hold at 5.5%.
The announcement was followed by a press conference, during which the Federal Reserve hinted that they do see the interest rates rising again by the end of the year and rates would remain elevated for a longer period.
USD strengthened in the aftermath of the press release, and GBP fell to $1.2293 against the U.S. dollar, hitting a five-month-low this morning. The Euro also fell below $1.07 against the dollar.
At noon the Bank of England is to make a decision regarding UK’s interest rates.
According to Susannah Streeter, head of money and markets at Hargreaves Lansdown:
”Nervousness is pervading sentiment as investors assess the prospects of interest rates staying higher for longer.
”The mood is being driven by the U.S. Federal Reserve taking a defensive stance in the fight against inflation, pausing for now but signalling a fresh rate hike to come“, she added.
The Federal Reserve’s announcement has created a lot of speculation as to what fate awaits UK and the next decision on interest rates.
According to Marios Hadjikyriacos, the senior investment analyst at XM:
”Following the latest inflation report that was colder than expected, markets are pricing this rate decision almost as a 50-50 coin toss.
“Admittedly, the data pulse argues for no action. The labor market loss jobs in July while economic growth stagnated, and business surveys suggest these trends will persist or worsen.
“The only real argument in favour of a rate increase is wage growth, which is extremely hot and continues to accelerate”.