Central Banks in Spotlight, BoE Next
16 June 2022
Volatility remained elevated on Thursday, following Wednesday's Fed decision and ECB emergency meeting, with investors selling risky assets as the global picture has not changed and remains bleak.
The target federal funds rate was increased by 75 basis points on Wednesday by the Fed, which also signaled future gradual increases throughout the year. This was the highest rate increase since 1994.
However, at the related news conference, Jerome Powell stated that he did not anticipate that subsequent increases of 75 basis points would become routine.
All risk assets flew after his comments, with US equity indices jumping 2% from daily lows, EU bourses also advancing sharply, and silver with gold jumping to new session highs. On the other hand, bond yields fell, along with the US dollar.
Also, on Wednesday, In order to maintain the functionality of the transmission mechanisms for monetary policy, the European Central Bank (ECB) declared that it would exercise flexibility in reinvesting the redemptions from the Pandemic Emergency Purchase Programme (PEPP), trying to stabilize bond yields in the EU. So far, unsuccessfully as the Italian yield continued to trade near 4%, the highest since 2014.
However, sentiment deteriorated on Thursday, with US stock indices completely erasing their Wednesday's gains, dropping to new swing lows and losing circa 2% on the day during the London session. The USD also strengthened notably, and US yields moved higher.
BoE on schedule
Later today, the Bank of England is expected to raise the benchmark rate by 25 bps for the fifth meeting in a row. However, with inflation hitting 9% in the year ending in April, the highest rate in 40 years, there are some worries that the Bank of England will be tempted to follow the Fed's lead and announce a more aggressive rate increase. Heading into the decision, the GBPUSD pair was down circa 100 pips, dropping back below 1.21.