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On July 31, three Federal Reserve policymakers stated that the dissenting votes for a rate hike this week stemmed from persistent inflationary pressures, indicating increasing internal pressure on Fed Chair Warsh to act. In a statement released Friday morning, Hamack and Kashkari expressed concern that while the current price increases may stem from short-term factors such as President Trumps tariff policies and the Iran war, the inflation situation now warrants Fed action. Logan joined in, stating that even if inflation cools somewhat, it is unlikely to fall completely back to the Feds 2% target level without a rate hike; in the absence of any policy constraints, inflation could continue to rise above the target level until an unexpected shock occurs. Kashkari indicated that if inflation remains stubborn, he might support a series of rate hikes, rather than just one, to prevent further entrenching of inflation. He said, "A series of small policy adjustments may be better than waiting for the situation to develop and ultimately having to take stronger action." Hamack stated that if the Fed does not tighten policy, the pace of price increases could continue to accelerate. She stated, "Inflation has been stubbornly above 2% for more than five years, and I am not confident that it will fall back to our target level on its own."Russian Defense Ministry: Russian forces struck a ship delivering supplies to Ukrainian troops in the Black Sea.According to the Iranian news agency IRNA: The foreign ministers of Iran and the United Kingdom spoke by phone to discuss regional developments.July 31 - The Philadelphia Semiconductor Index nearly erased its intraday gains, after rising as much as 5%. SanDisk (SNDK.O) fell about 7%, Micron Technology (MU.O) fell more than 4%, and SK Hynix (SKHY.O) fell more than 2%. The Nasdaq Composite Index is currently down about 0.2%.On July 31, Federal Reserve Chairman Logan stated that inflation risks are tilted to the upside, and the robust job market is strengthening slightly. Currently, monetary policy is not suppressing the economy, and inflation is not moving towards the 2% target. He believes the Federal Open Market Committee (FOMC) cannot rely on unexpected shocks to achieve its goals. He indicated a preference for raising interest rates by 25 basis points to better balance the economic outlook and risks. The Feds recent moderate action will reduce the likelihood of needing more forceful action in the future. Without any policy constraints, inflation could persist above target until an unexpected shock occurs.

GBP/USD seeks to regain 1.2300 as higher UK CPI strengthens the case for a rate hike by the Bank of England and the USD retreats

Alina Haynes

Mar 23, 2023 15:00

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During the Asian session, the GBP/USD pair attempts to reclaim the resistance level at 1.2300. Following a vertical correction, the Cable has recovered to near 1.2260 as the market anticipates that the absence of hawkish interest rate guidance from Federal Reserve (Fed) chair Jerome Powell while addressing the economy at the monetary policy meeting indicates that the Fed is close to ending its policy-tightening spell.

 

S&P500 futures have generated some gains in the Asian session following a decline on Wednesday as a result of Fed Powell's confirmation that the fight against intractable U.S. inflation will continue. Chairman of the Federal Reserve Jerome Powell has ruled out rate cuts in 2023, citing the difficulty of controlling inflation. In addition, US Treasury Secretary Janet Yellen's statement that the government "does not plan to insure all uninsured bank deposits" heightened fears of a banking sector collapse.

 

Following a recovery move, the US Dollar Index (DXY) has retreated on expectations that additional credit tightening to protect banking institutions will reduce overall demand, economic activity, and inflation. In the interim, the demand for US government bonds has increased as a result of expectations that US Janet Yellen will end further policy restrictions and reduce support for all bank deposits.

 

On the front of the United Kingdom, the Pound Sterling is likely to maintain its strength as the Bank of England (BoE) is scheduled to raise rates for the eleventh consecutive time. Governor Andrew Bailey of the Bank of England is expected to raise interest rates by 25 basis points (bp) in response to rising food and non-alcoholic beverage prices, as well as rising energy costs, which have contributed to inflation in the United Kingdom.

 

In the midst of global banking turmoil, the Bank of England's (BoE) interest rate decision will be difficult, as policymakers were divided over whether to raise rates further or maintain them at their present level.


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