A Divided Fed, a Hawkish Dissent & a GDP Print.
Summary
The Federal Reserve held rates at 3.50%–3.75% on Wednesday, but four officials dissented, the most in any meeting since October 1992, as deep divisions over the path ahead surfaced publicly for the first time in Powell's tenure
The Bank of England held Bank Rate at 3.75% on Thursday in an 8–1 vote, with Chief Economist Huw Pill voting for an immediate increase; sterling climbed to its highest level since mid-February
The ECB also held its deposit facility rate at 2.00% on Thursday, with President Lagarde leaving the door open to a June move
US Q1 GDP came in at 2.0% annualised on Thursday, below the consensus forecast, but with the Fed's preferred inflation gauge surging to 4.5% annualised in the same period
Last week produced one of the most consequential 48-hour stretches in currency markets this year. Three central banks decided, a GDP print landed, and the Federal Reserve's era under Jerome Powell drew to a close in circumstances nobody had anticipated. The hold at 3.50%–3.75% was never in question, but the four dissents that accompanied it laid bare a Committee pulling in opposite directions. Three officials voted against retaining the easing bias in the statement, signalling the next move could be up rather than down. A fourth voted for a cut. Powell confirmed in what was his final press conference as Chair that Kevin Warsh, who cleared the Senate Banking Committee the same day, would inherit a central bank in the middle of its most complex balancing act in years.
The GDP advance estimate reinforced that complexity. Growth rebounded to 2.0% annualised in Q1, a significant acceleration from the near-stall recorded in the final quarter of 2025, but the composition gave markets pause. Much of the headline figure reflected a bounce in federal spending as the late-2025 government shutdown reversed, alongside defence outlays tied to the Iran conflict. Consumer spending decelerated, and the PCE price index surged to 4.5% annualised, more than double the Fed's 2% target. The dollar reaction was measured, with markets weighing a growth print that looked stronger than it was against an inflation reading that leaves the incoming Chair with very little room to ease.
Sterling was the week's standout performer, climbing above $1.36 by Friday, its highest level since mid-February. The Bank of England's decision was expected, but the vote was not. Huw Pill's dissent in favour of a 25 basis point increase marked the first vote for a hike from a sitting MPC member since the current tightening cycle ended, and Governor Bailey's characterisation of Thursday's decision as an "active hold" reinforced that the Committee is watching the energy shock's second-round effects with growing attention. The April Monetary Policy Report flagged further CPI increases ahead, with utility bills set to rise when the Ofgem price cap adjusts in July. Markets read the tone as more hawkish than expected and sterling responded accordingly.
The ECB's hold was the most straightforward of the three decisions, though Lagarde's press conference was closely watched. Flash data released the same morning showed eurozone headline inflation jumping to 3.0% in April while core held at 2.2%, giving the Governing Council grounds to wait while keeping June firmly in play. Lagarde declined to pre-commit in either direction, noting that six weeks would give policymakers a clearer picture of how the conflict develops.
Events to Watch This Week
Tuesday 6 May: US ISM Services PMI (April)
Thursday 7 May: UK local, Scottish Parliament and Welsh Senedd elections
Friday 8 May: US nonfarm payrolls and unemployment rate (April)
Friday's payrolls report is the week's most significant release for currency markets. March's figure of 178,000 came in well above expectations; April's number will offer the first clean read on how the American labour market is absorbing the energy shock. Speak to the Orbis dealing team ahead of Friday's release to ensure your upcoming transfers are protected.
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