The Bank of England and the US Federal Reserve (Fed) both raised interest rates again this week by 0.25%. This followed news of the banking sector feeling the pressure of rising rates. We saw the collapse of Silicon Valley Bank in the US and an emergency acquisition of Credit Suisse by UBS in Europe – even though it wasn’t subject to the same issues seen in the US.

Because of these events, there was increased uncertainty around central banks’ scheduled interest rate announcements this week, according to Lilian Chovin, Head of Asset Allocation at Coutts, the bank behind the NatWest Invest funds.

Lilian said: “This is probably the first time in history where we went into a Fed meeting with expectations of three possible outcomes: a rate cut, no change, or a further rate hike.”

Despite the Fed’s decision to continue raising interest rates, it did suggest rates were nearing their peak sooner than previously expected.

Monique Wong, Head of Multi Asset Portfolio Management at Coutts, explained: “The Fed Chairman Jerome Powell wouldn’t be drawn into a discussion around rate cuts. But the language used around rate rises was softer and there was an acknowledgement of the risks that tighter bank lending standards would eventually mean for the economy.”

The American central bank acknowledged recent bank sector stress, but showed confidence in the sector’s resilience, and it still wants to bring inflation down to its target of 2%. The same objective is shared this side of the Atlantic, although is proving trickier as the UK’s February inflation print announced earlier this week showed rising costs were accelerating again.

Year-on-year UK inflation for February came in at 10.4%, up from 10.1% the previous month. This was after the figure fell over the three previous months.

US Treasury yields on 10-year and two-year bonds fell by 0.15% and 0.26%, respectively. This was positive for our Defensive and Balanced mandates, which have notable exposure to government bonds.

Meanwhile, we have low exposure to bank stocks in our portfolios, and no exposure to small US banks.

The value of investments can fall as well as rise and you may not get back what you put in. Past performance should not be seen as an indication of future performance. You should continue to hold cash for your short-term needs.