Market Update

Markets continued their upward momentum this week, with central bank policy decisions remaining in focus. Investors reacted positively on Wednesday as the Federal Reserve once again held interest rates steady at 4.25%-4.5%, reaffirming its confidence in the broader economic outlook. US equities extended their gains following the announcement, closing higher as markets interpreted the decision as a sign of stability.
During his post-meeting remarks, Fed Chair Jerome Powell reiterated the central bank’s commitment to a data-driven approach, acknowledging that while inflation has moderated, the path forward remains uncertain. The Fed left its economic growth projections unchanged at 1.7% for the year but slightly revised its core inflation estimate down to 2.7%. Powell reaffirmed that policymakers stand ready to maintain elevated interest rates should inflationary pressures persist but also signalled a willingness to pivot should economic conditions soften more rapidly than expected.
In the UK, labour market data indicated resilience, with the unemployment rate holding firm at 4.4% in February. Wage growth, while moderating slightly, remained robust, surpassing inflation once again. The latest figures from the Office for National Statistics (ONS) showed that regular pay, excluding bonuses, increased by 5.7% in the three months to February, while total pay, including bonuses, climbed by 5.6%, a slight decline from 5.9% previously.
Despite signs of economic strain, including a 0.1% contraction in GDP for February, the Bank of England opted to maintain its benchmark interest rate at 4.5% during Thursday’s policy meeting. Governor Andrew Bailey reiterated that the trajectory for rates remains downward, albeit gradually. However, policymakers warned that inflation could temporarily rise to 3.8% later in the year, primarily due to ongoing energy price fluctuations and persistent supply-side constraints.
The Japanese yen continued its downward trajectory against major currencies on Friday following the latest inflation data release. Headline inflation in Japan slipped to 3.5% in March from 3.7% the previous month, largely reflecting government efforts to cap energy costs. Similarly, core inflation, which excludes fresh food, eased to 2.8% from 3.0%. However, when stripping out both fresh food and energy, underlying inflation edged higher to 2.7% from 2.6%, underscoring persistent price pressures in the services sector and sustained wage growth. While inflation appears to be cooling, the Bank of Japan remains under pressure to assess further tightening measures to balance economic stability with inflationary risks.