The US central bank has implemented another expected 0.25% increase in interest rates, possibly marking the culmination of this significant tightening cycle. The Fed's target rate has now reached 5.25% - 5.50%, the highest in 22 years. Despite a notable drop in US inflation to 3%, potential risks persist as the economy continues to outperform and the job market remains tight.

Similarly, the European Central Bank has raised rates by 0.25%, setting the key deposit rate at 3.75%. The message conveyed by the move has divided the markets on whether there will be another hike in September or if we have already reached the peak. Economic data for this week indicates a weakening of growth conditions and business expectations, which accentuates the dangers of excessive tightening, potentially leading the economy into a recession.

In the UK, all eyes are on the upcoming Bank of England meeting. Market sentiment leans toward a 0.25% rate increase, although the possibility of a 0.50% hike is still on the table. The data released this week has been below expectations, including the vital services sector, and no further significant releases are expected before the decision next week. Forecasts suggest more rate hikes in the following months, possibly raising the Bank rate to 5.75% by the end of the year.

On the currency exchanges, the strength of the dollar due to robust US growth data has caused the pound sterling to pull back slightly from its recent highs, but it remains trading up around 1.1700 against the Euro.