GBP

The pound fell heavily against the dollar on Wednesday as the Federal Reserve announced they will be planning to raise interest rates in March and will look at further rate hikes as the year goes on.

With the UK economic calendar looking light with no major data releases before next week’s Bank of England’s rate decision, Sterling could be set for further losses. The pound could test last year’s lows in the coming days due to the dollar strengthening.

USD

Fed Chair Jerome Powell stated on Wednesday that the central bank was ready to raise interest rates in March to combat the highest level of inflation the USA has had in almost thirty years. Furthermore Powell hinted that there could be a rate hike at each meeting this year in order to bring inflation back within its target. We could potentially see three hikes of 0.25% this year along with three more in 2023 and another two in 2024. If this was to occur, forecasts are predicting inflation to drop to 2.7% by the end of the year from the current level of 4.7%, and the unemployment rate to fall to 3.5%.

The asset purchase program which was put in place to provide support during the pandemic is also set to be wound down in March. With the unemployment rate now below 4%, many policymakers have concluded maximum employment has been achieved, fulfilling one of two goals laid out by the Fed before moving to more significantly tightened monetary policy. The other goal of inflation averaging at 2% over time was met last year.

Key announcements

13:30 – USD – Advance GDP Q/Q – Forecast at 5.3% from previous 2.3%
13:30 – USD – Unemployment claims – Forecast at 260k from previous 286k