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Sterling trading lower after central bank meetings last week

Monday 7 February, 2022

Daily Currency Update

Last week we saw some volatility for Sterling denominated currency pairs. The pound initially strengthened after the Bank of England announced that they plan to raise rates by 0.25bp to 0.5%.  However, this strength was short-lived after Bank of England Governor Andrew Bailey indicated that only ‘modest’ tightening would follow this interest rate hike. He also indicated that the Bank of England faces a ‘very difficult balance’ between the issues of living standards dropping and trying to fight inflation. They reported that inflation could be as high as 7.25% in April because of the surging energy costs. GBPEUR dropped from highs above 1.20, to finish the week closer to the 1.18 handle. GBPUSD also traded in a similar trajectory, finishing the week near the 1.35 handle.

Key Movers

Thursday’s Bank of England rate hike was overshadowed by the European Central Bank’s unexpected hawkish turn. EURUSD broke 1.14 in part due to comments that they could look to end the negative interest rate environment at some point this year. This also supported the move lower for GBPEUR. The US ADP report of minus 301k vs its forecast of 185k surprised the markets on Wednesday. This set up low expectations for Friday’s non-farm payroll which surprised the markets to the upside, reporting 467k vs an expected 110k.

Expected Ranges

  • GBP/USD: 1.3450 - 1.3550 ▲
  • GBP/EUR: 1.1780 - 1.1850 ▲
  • GBP/AUD: 1.8990 - 1.9120 ▲
  • EUR/USD: 1.1395 - 1.1495 ▲