The pound fell sharply against the dollar following the US Federal Reserve’s interest rate increase last night.
Against the euro the pound strengthened initially then gently declined through the afternoon. Sterling’s new strength followed President Putin’s escalation of the Ukraine war, which triggered the euro to weaken against both currencies. Against the dollar however, sterling made dramatic losses over the course of the day in the run up to and after the Federal Reserve’s interest rate decision.
Interest rates are the popular event this week as central banks continue to tackle rising inflation. This afternoon, the Bank of England will decide on its latest rates following its last hike during August’s monetary policy meeting. Last month the Bank raised interest by 50 basis points to 1.75%, its highest rate in 27 years. Markets have priced in another increase for today’s rate and are expecting interest to hit 2.25% or even 2.50%.
Vladimir Putin announced the mobilisation of troops and warned that Russia would use its nuclear weapons if its “territory” came under threat. Jens Stoltenberg, a Nato secretary-general, said that Putin “knows very well that a nuclear war should never be fought” and furthermore “cannot be won”. Furthermore, Us president Joe Biden said Putin’s nuclear threats against are “outrageous acts”.
Yesterday, market’s saw the Federal Reserve raise US interest by 75 basis points to 3.25%, in line with predictions. This most recent hike has subsequently pushed US borrowing costs to their highest levels in 14 years.
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