This is not the end of rate hikes in the "Islands"

We have a lot of calm on the market and a kind of waiting for the next impulse. VIX index – showing the nervousness in the US stock market reached its lowest level since November 2021, suggesting that concerns about the stability of the US banking sector have probably ended for now. In turn, the implied volatility of the EUR/USD exchange rate is also close to the lowest levels this year.

Next steps of the Bank of England

Great Britain presented surprisingly high inflation figures. The pound gained moderately against the USD and slightly more strongly against the euro.

The market is waiting for a new "momentum". This is beyond doubt. The consequence of this is relatively boring trading. There is little volatility on the market, which is visible in the results of the main stock exchange indices. The market's attention may have returned to inflation, as surprising data was released by Great Britain. The dynamics of price growth on the "Islands" is more persistentthan expected. Yesterday's publication proved it.

The overall indicator remains in double digits mainly due to high food inflation. After surprisingly high wage growth according to Tuesday's Labor Market Report, it became clear to the financial markets: Bank of England will not be able to stop interest rate hikesas expected, but will have to take further steps. Final interest rate of 5%. is now re-priced, i.e. at the same levels as before the emergence of concerns about the condition of the banking sector.

The fight against "expensive"

Sterling managed to gain slightly due to rising expectations for further rate hikes. So far, the BoE has considered pausing the monetary tightening cycle despite high inflation. Yesterday's appreciation of GBP is probably due to the fact that the market is again hoping that Bank of England will continue 'fight' against 'expensive prices'. For this reason, investors will most likely be watching today's speech by BoE Council member Silvan Tenreyro, in the hope of receiving some concrete "hawkish" signal.

From today's "minutes" from the March meeting EBC don't expect any major boost. The May decision on interest rates (25 or 50 bps) may be largely determined by the result of April's inflation, which will be announced on May 2 - two days before the meeting of the European institution.

Source: OANDA TMS Brokers