Market Updates – May 7

Federica D’Ambrosio

Senior Trader and CFO

Financial Analysts Warn of Possible Recession as Central Banks Continue Interest Rate Changes

The US Federal Reserve (Fed) has raised the policy rate, federal funds rate, by 25 basis points to the range of 5-5.25% following the May policy meeting. This decision was in line with market expectations. However, the US Dollar came under renewed bearish pressure and declined toward 101.00 as a result. Despite the continued banking turmoil, the Fed has increased interest rates for the 10th time in a row, but signalled it may soon pause its aggressive monetary tightening campaign. The Fed will take a “data-dependent approach” on future hikes, using economic data such as the unemployment rate and job vacancies to make that decision.

Meanwhile, the European Central Bank (ECB) has also raised rates by 25 basis points. The central bank for European countries increased interest rates to 3.25 percent, and Christine Lagarde, the ECB’s president, signalled the financial institution “are not pausing”.
In other news, the US economy added 253K jobs in April 2023, beating forecasts of 180K and following a downwardly revised 165K in March. Employment continued to trend up in professional and business services, health care, leisure and hospitality, and social assistance. The unemployment rate, at 3.4 percent, and the number of unemployed persons, at 5.7 million, changed little in April. The unemployment rate has matched a 50-year low, which was seen in January and has ranged from 3.4 percent to 3.7 percent since March 2022.

As contagion fears in the US Regional Banking sector grow, risk sentiment is currently giving the US dollar a supportive hand. PacWest Bancorp and Western Alliance Bancorp slumped by 50% and 38% respectively as worries over another round of deposit outflows escalated. Other safe-haven assets, including gold and the Japanese Yen, have also been in demand. XAU/USD briefly touched its highest in over a year in the immediate aftermath of Wednesday’s Federal Reserve monetary policy announcement, but prices have since come down. Financial analysts are sounding the alarm that a recession is likely due to central banks failing to end their changes to interest rates. In conclusion, the recent interest rate hikes by the US Federal Reserve and the European Central Bank have garnered attention from financial analysts and the general public alike. While the US banking sector is facing a difficult period, the Fed maintains that it is still sound and resilient.

High Impact News This Week: May 8 – 12

Please remember to close the exposure in the directly related pair to the news event. The exposure must be cleared 1 hour before the event and the position can be opened again from 30 min after the data has been released, in case of a speech positions can be reopened after the speech is over. 


01:30 PM BST   USD   Consumer Price Index


12:00 PM BST   GBP  BOE Interest Rate & Monetary Policy

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