The recent agreement on the US debt ceiling has provided some relief to global markets, and investors are once again paying close attention to central bank monetary policies.

In light of a disappointing inflation report, it is widely anticipated that the Bank of England will raise interest rates by an additional 0.25% this month. Market expectations suggest that rates may peak around 5.35% in the second half of the year. However, the negative consequences of higher interest rates on the economy are causing significant concern. There is an increased risk of a recession and growth may fall below projected levels.

In the United States, there is a mixed sentiment among market participants regarding whether there will be one final rate hike. Inflation has proven to be persistent, leading to uncertainty about whether interest rates have already reached their peak. As a result, interest rate cuts have been postponed until early next year.

Despite inflation slowing to a lower-than-expected 6.1%, the European Central Bank remains relatively hawkish. However, the market has adjusted its expectations for rate hikes, with two more increases anticipated in the coming months.

Weaker growth data from China is currently impacting global risk sentiment across different asset classes.

Interest rate differentials are currently driving momentum in the foreign exchange markets. The Euro is weakening due to a softened rate outlook. The GBP/EUR pair continues to reach new year-to-date highs above the 1.1600 level, while the GBP/USD pair has made a strong recovery from recent lows and is now trading above 1.2500.