Yesterday’s FOMC meeting has confirmed the US`s status as world leader in overcoming the global financial crises. The FOMC members raised rates as expected by 0.25%, the second time in 10 years since the crisis began, taking the overnight rate in the US to 0.5%. Although the rate hike was fully priced in, we saw an extended gain in the greenback as it continues to make multi year highs while gold tumbled deeper into fresh 10 month lows and equities slid off the back of tightening measure drying up liquidity in the economy. The extended move comes on the back of FED Chairman Yellen`s comments which were exceptionally bullish as she sighted an encouraging improvement in the economy, on the back of low unemployment levels and increasing inflation as the US economy heats up, as the key reason why the FED will likely raise interest rates at least another 3 times in 2017. This surprised markets who previously priced in two increases in 2017, ultimately pushing the USD higher while gold and equities tumbled. This trend is expected to continue provided that the US data confirms the FED bullishness with Yellen cautious to add that the rate hikes were not a given but subject to review as data came in.
Today sees the Bank of England taking the crease as they too are set to release their findings and decisions on the UK economy along with the measure which they will implement based on their analysis. We expect to see the Official Bank Rate and Asset Purchase Facility to be released at 12:00 GMT, both are expected to remain unchanged at 0.25% and 435B respectively. Any upside surprises here, in which the BOE increases rates or decreases the Asset purchase facility will see the GBP rally up aggressively while a cut in rates or an increase in the Asset Purchase Facility will see the GBP fall sharply as the BOE prepares for a worsening economy. Also of interest will be the Monetary Policy Summary which markets will scrutinise for how the BOE came to its conclusion regarding the measures and most importantly how the BOE sees the UK economy fairing in the near future. Should the summary indicate a resilient UK economy, we would see markets price this in as a bullish sign, driving the GBP higher while a summary which shows increase concerned by the BOE, is likely to see the GBP tumble further.