Fed to raise interest rates ‘soon’

The dollar has gained ground following yesterday’s Fed meeting – at which the central bank confirmed that it would shortly begin raising interest rates – strengthening by around a cent against both the euro and sterling to $1.12 and $1.34 respectively, which leaves the single currency-pound exchange rate at about 83.5p

US bond yields also spiked higher post the Fed meeting with 10-year yields immediately rising by around 10bps to 1.87% before easing back a touch, and 2-year yields increasing by almost 15bps to north of 1.15%

European equity markets recovered further ground yesterday with gains of more than 2%, but US indices reversed course post the Fed to close slightly lower on the day having been ahead by more than 1% at one stage

In its post-meeting statement the Fed noted that “indicators of economic activity and employment (in the US) have continued to strengthen” and that “with inflation well above 2 percent….it will soon be appropriate” to begin raise interest rates, meaning a first hike is almost certain at the Fed’s next meeting in March

Data due today includes a first estimate of fourth quarter (2021) GDP in the US – the consensus expects an increase of almost 1.5% from the third quarter of last year