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Surprise, Surprise; the Fed raise rates

  • GBP - Average Earnings Index 3m/y: 2.1%
  • USD - CPI m/m: -0.1%
  • USD - FOMC Press Conference

Despite weak inflation in the US, the Federal Reserve went ahead and pulled the trigger last night raising interest rates to 1.25%. The FOMC also stated that they have additional plans to tighten monetary policy further. The central bank also maintained their outlook for one more increase this year and three hikes next year. The hawkish tone helped the Greenback par back some of the European sessions losses and push GBP/USD back down to Monday’s levels.

A raft of poor US data weakened the Greenback yesterday. Data showed that inflation dropped to 0.1% y/y, just above deflation territory and retail sales declined to a two year low. The Dollar declined substantially as the worse than expected figures pointed to a slowdown in the US’s biggest sector; the tertiary sector, which accounts for two-thirds of the US economy. May’s surprisingly sluggish results could worry Fed officials who have previously attributed the slowdown in domestic demand to transitory factors.

  • GBP - MPC Official Bank Rate Votes
  • GBP - Official Bank Rate
  • USD - Unemployment Claims

Today, markets will be focusing on the Bank of England’s interest rate decision. No rate rise is expected, however with the inflation rate hitting four year highs yesterday, the BoE will need to start acting soon if they want to reduce it. The votes are expected to remain at 6-1, any changes to this will no doubt cause a shift in the Pound. Also from the UK, we have the retail sales figure and BoE Governor Mark Carney is scheduled to speak at the Bankers and Merchants Dinner, so it could be a very volatile day for the Pound. Across the pond, the US will release their weekly unemployment claims figure.