This week, market sentiment has been shaped by Fed chair Powell's warning that the US central bank is likely to take a more aggressive stance on rate hikes. This has led to a risk-off environment, causing global stocks to suffer and bolstering the dollar.

In response, analysts have increased their predictions for the peak in interest rates for both the US and UK, as inflation continues to remain high.

The Bank of England is expected to raise rates by 0.25% this month, resulting in another split vote. The projected peak in rates for the UK is now at 4.85% later this year. Friday’s UK growth data was slightly better than expected, but next week's jobs data and budget announcement will be crucial for the economic outlook.

Meanwhile, in the US, despite the risks of a sharper recession, Powell has indicated that rates will increase and remain high for longer than expected. The market is predicting another 0.50% hike this month, with today's payrolls data and next week's inflation report being key factors.

The European Central Bank is also maintaining a hawkish stance on rates, with a 0.50% hike fully priced in for next week's meeting. Rates are forecasted to peak around 4% later this year.

As a result of Powell's comments, the dollar has significantly strengthened, putting pressure on sterling due to the expected interest rate differentials.