With Bank of England raising rates yesterday by 50 basis points, we saw flash movements on the market first by a spike against both the USD and EUR.
It later settled in and around the area where rates were held before its meeting. Normally a rate hike is good for its currency, so how come this time Bank of England raised its rates by double the amount to its last meetings and not accumulating effect on the GBP?
Well markets are worried that the BoE are driving UK into a recession. Something Bank of England Governor Andrew Bailey condemned. Stating “We’ve got an economy that is much stronger and more resilient than we expected it to be. So we’re not expecting or desiring a recession for the UK. We will do what’s necessary to bring inflation down to its target.”
Andrew Bailey also touched on wage and price increases saying its unsustainable for the economy.
We had key UK released this morning, retail sales for May rose by 0.3% monthly. The retail sector performed a lot better than markets predicted. Potentially a boost in May, down to the fact there were three bank holidays. On top of that, wage increases throughout sectors seem to have created additional disposable income.
Over to America and Jerome Powell held a testimony two days ahead of congress, being questioned about the rate hike pause earlier this month.
Powell stated that the Fed is looking to do at least two additional rate hikes this year, these comments put some strength back into the dollar gaining against other major currencies.