After finding demand from improved market sentiment throughout London trading yesterday , Sterling suffered from broad based dollar strength in the evening , following comments from Federal Reserve Bank Chairman Jerome Powell that the central bank will raise the fed funds rate by more 25 basis points at future meetings if they need to .
Against the euro , pound has managed to hold to yesterday’s gains , as the single currency was also sold against the dollar after Powell’s comments . Official data from the Office of National Statistics released this morning showed that UK public sector borrowing , with just one month left in the financial year was less than half its level a year earlier . Borrowing for the first 11 months of the 2021/2022 financial year was £138.4 bln 52% below the record £290.9 bln from April 2020 to February 2021 , during the height of the covid pandemic . Following the data’s release Chancellor Rishi Sunak who will prepare new borrowing forecasts when he delivers his “spring Statement” to parliament tomorrow, said “ with inflation and interest rates still on the rise , it’s crucial that we don’t allow debt to spiral and burden future generations with further debt” . Later today Markets will look forward to a speech by Bank of England policymaker Jon Cunliffe at the BIS innovation summit . Cunliffe was the only policymaker to vote to keep rates unchanged when the Bank of England raised interest rates at last week’s meeting
The euro struggled across the board yesterday when European Central bank President Christine Lagarde acknowledged that central bank monetary policy will remain out of sync with Federal Reserve Bank policy in the foreseeable future , as the war in Ukraine has vastly different effects on their economies
Lagarde told the financial conference in Paris that “Our two economies are in a different place in the economic cycle, even before the war in Ukraine,” and “For geographical reasons, Europe is way more exposed to the war than the U.S..
The European foreign ministers disagreed on Monday whether to sanction Russia’s lucrative energy sector energy at their meeting in Brussels . While the Baltic states and Poland called for a ban , Germany and the Netherlands said the EU was dependent on Russian oil and gas and could not cut itself off right now
The dollar found demand yesterday when Federal Reserve Bank Chairman Jerome Powell said the Fed would raise short its benchmark short term interest rate faster than expected , and high enough to restrain growth and hiring , if it decides this would be necessary to slow rampaging inflation.
Powell’s message was more “hawkish” than his comments were following last week’s Fed meeting and financial markets reacted accordingly. His remarks caused a sharp drop in Wall Street , the dollar index rose by 0.7% and the 10-year Treasury Bond yield hit its highest level since May 2019 .
Futures markets are now pricing in a 61% chance that the Fed will raise interest rates by 50 basis points at their May meeting, up from 50% before Powell’s comments . Markets will now focus on speeches by follow policymakers at today’s BIS innovation summit to reinforce those views.
13.15 ECB Lagarde speech
14.30 FED Williams speech
1515 BOE Cunliffe speech