Fed meeting the focus this week

The euro and sterling both gained around two cents against the dollar last week and begin this week trading at around $1.02 and $1.20 respectively, which means the single currency-pound exchange rate kicks off hovering around the 85p mark

Last week saw a notable decline in US government 10-year bond yields, which fell by more than 15bps to 2.75% amid signs of slowing economic growth, while equivalent German 10-year yields declined by around 10bps to just shy of 1.92% even as the ECB announced a larger than expected 50bps increase in interest rates at Thursday’s meeting

ECB President, Christine Lagarde, says the central bank “will raise interest rates for as long as it takes to bring inflation back to our (2%) target“, adding that the “clear message to companies, employees and investors (is that) inflation will return to..target in the medium term”

The Fed holds a two-day monetary meeting on Tuesday and Wednesday this week, after which it is likely to announce another 75bps hike in interest rates (to a range of 2.25% to 2.50%) and would bring the cumulative increase in rates since March to 225bps

Data due this week include first estimates of second quarter GDP in the US and Euro area on Thursday and Friday respectively, with PCE inflation for June in the US and a flash reading of July CPI inflation in the Euro area both released on Friday