The Bank of England was forced to copy the Fed, with a further 25 basis point rate rise overnight, following the sharp rise recorded in the UK’s latest inflation number. Markets had expected that ‘peak inflation’ had been reached, and Central Banks had turned the corner. Not so. UK inflation surged to 10.4% and this has forced the Bank of England to continue with aggressive rate rises. Inflation remains the pivotal problem facing European economies, although this has been magnified and compounded, by the emergence of a banking crises. The Swiss National Bank quietly and unobtrusively, raised rates by 50 basis points, raising eyebrows, following the latest banking crises centrally involving Credit Suisse and UBS. The Norwegian Central Bank also raised rates, along with the Asian Central Banks of the Philippines and Hong Kong. Markets will closely monitor the latest inflation data from the world’s third largest economy, Japan, set to be announced today. The Fed raised rates by a further 25 basis points, but signalled an end to rate rises, with just one more possible hike this year. This was enough to rally equity markets and send the US dollar lower. The EUR climbed back towards 1.0900, while the GBP was boosted by the BofE actions, moving back around1.2300.
Commodity currencies have been beneficiaries of the softer reserve, with the NZD regaining 0.6250, while the AUD looks to hold above 0.6700. Markets will focus on PMI data released from Australia, Japan, Europe and the USA. Japanese inflation will also be a key economic indicator, with the CPI set for release in today’s morning trade.