Home Daily Commentaries GBP/USD recovers after hitting two year low

GBP/USD recovers after hitting two year low

Daily Currency Update

Last week saw GBP/USD drop under 1.20 for the first time since the COVID-19 pandemic hit the UK and forced the country into lockdown in March 2020. The pound is looking a little fragile at the moment as the Bank of England tries to tame inflation that is at a 40 year high without triggering a recession.

Although the BoE did raise interest rates by 0.25% last week, some were expecting a more aggressive 0.5% hike. However it looks likely that we are going to see a series of small rises for the rest of the year with interest rates possibly hitting 3% by year end. This messaging from the Bank has helped GBP/USD push up above 1.22 with GBP/EUR back above 1.16, paring the losses it saw last week.

Looking ahead Wednesday morning sees the latest inflation data from the UK with CPI expected to tick higher to 9.1% from its current 9%. We finish the week with Retail Sales numbers which is being closely monitored at the moment. A contraction of 0.6% is expected for May as the spending squeeze starts to hit the high street.

Key Movers

EUR/USD continues to trade around the 1.05 level, resisting downward momentum that some markets analysts had predicted would see it get to parity. The head of the European Central Bank, Christine Lagarde, is due to speak about monetary policy later today at a meeting in Brussels so we may hear further commentary on the date the bank could begin to raise interest rates. Currently a 0.25% rise in both July and September are expected as it finally joins the Bank of England and the Federal Reserve in tightening policy.

It’s a public holiday in the States today so it’s quiet on the data front. The main event this week will be two days of testimony by Chair of the Federal Reserve, Jerome Powell, which is due to start on Wednesday in Washington. Again, the pace of future interest rate hikes will be the key area of focus with another 0.75% rise likely next month.

Expected Ranges

  • GBP/USD: 1.2180 - 1.2300 ▲
  • GBP/EUR: 1.1520 - 1.1680 ▲
  • GBP/AUD: 1.7460 - 1.7625 ▼
  • EUR/USD: 1.0475 - 1.0600 ▲