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Markets anticipate FOMC announcement

Wednesday 4 May, 2022

Daily Currency Update

GBP/USD was relatively flat overnight during the Asian trading session, in what feels like a calm before the storm, should there be any surprises in the Federal Reserve interest rate decision today. The pair broke below the 1.25 handle once again – with it now being the third time in 3 consecutive sessions. Analysts believe that a break lower is imminent, however, which could be triggered by either the FOMC announcement today or the Bank of England’s policy meeting tomorrow. Many believe that the risks from the BoE meeting tomorrow are more skewed to the downside, and we may see the pound tumble even with a 25bp rate hike.

Key Movers

The US labour department released their latest JOLT job openings yesterday, which showed that there is currently a very high number of job openings exceeding the total number of unemployed people in the US. This tightness in the labour market in conjunction with incredibly high levels of inflation has been one of the key reasons as to why the Fed is expected to aggressively tighten their monetary policy in the coming year. The US dollar index – which measures the strength of the US dollar against a basket of other currencies – hit a 20-year-high last week in anticipation of the Fed’s rate announcement today. Though it is not certain, it appears as though markets have fully priced in a 50bp hike at today’s meeting, and we could see the dollar rally off the back of this. EUR/USD remains around the 1.05 handle, but many expect that it could break lower in the coming days. Isabel Schnabel of the ECB yesterday firmly stated that we will see a rate hike by the ECB in July, after another ECB member had previously stated that this was possible but not likely. There was little to no reaction from the euro at all in response to these statements. It's likely that the EUR/USD pair will today be impacted by the FOMC announcement, so we may see some volatility later in the day.

Expected Ranges

  • GBP/USD: 1.2420 - 1.2525 ▼
  • GBP/EUR: 1.1855 - 1.1975 ▲
  • GBP/AUD: 1.7510 - 1.7640 ▼
  • EUR/USD: 1.0450 - 1.0555 ▼