UK stock markets could see a rise in volatility tomorrow as two important monetary policy events take place in a short time span. This comes after fears over a banking crisis impacted sentiment before receding.
Daniel Takieddine, CEO MENA BDSwiss said, “The Federal Reserve is expected to reveal its decision relating to interest rates later today. The uncertainty over the outcome continues to be an important issue for investors. A higher probability of seeing a 25 basis point hike is priced in market prices but a pause is also plausible due to the banking sector’s woes.
At the same time, the higher-than-expected inflation figures in the UK broke the current downtrend and could push the Bank of England into a tighter monetary policy direction. The decision could impact the stock market and the pound where investors have been uneasy with the slew of events of the last few days.
The FTSE 100 could remain under pressure in the meantime as traders observe the US and UK central banks’ decisions. At the same time, the retreating fears around the banking crisis have enabled UK banks to rise, offsetting losses elsewhere.
UK banks have recorded less distress than their Swiss and American counterparts where pressures have been more lively. However, they could remain exposed to any new swings in sentiment in particular in the US.
The pound could record gains against the dollar as UK inflation data favors a more aggressive stance from the Bank of England compared to its US counterpart. The Federal Reserve still has to contend with banking concerns which have not been affecting UK banks as much in comparison.
Overall, high volatility could be strongly present in both the stock market and the pound movements during the next 24 hours as markets integrate the US and UK central banks’ decisions into their expectations.”