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Pound buoyant before Bailey talks

Daily Currency Update

GBP/USD has managed to get above the 1.21 level ahead of today’s big event from the UK, Bank of England Governor Andrew Bailey’s appearance before the Parliaments Treasury Committee. Although the discussions will focus primarily on last week’s interest rate decision and accompanying economic forecasts, we may get some additional clues from the Governor on the future path of monetary policy which could cause some pound volatility as head toward lunchtime. After the Bank last week raised rates to 4%, their highest level in 15 years, there is growing speculation that they may have peaked and the BoE policymakers will decide to pause on rate hikes to protect the UK economy from unnecessary economic damage. Tomorrow we will get the latest reading on the UK's economic health with GDP data due at 7 am. Along with the monthly reading for December there is the first estimate of the fourth quarter of 2022 which if it comes in flat will show the UK has narrowly escaped a technical recession. Although this is backward-looking data it could cause some further pound gyrations to end the week. GBP/USD is at 1.2130 with GBP/EUR also higher at 1.1270.

Key Movers

Whereas it looks like the Bank of England may have ended hiking rates, it looks like the US is set to keep on moving them higher as recent comments from the Chair of the US Federal Reserve, Jay Powell echoed by other members of the Federal Open Market Committee yesterday. New York Fed President John Williams and Federal Reserve Board of Governor member, Christopher Waller both gave warnings to expect the Fed to hike even more this year in separate speeches. Unlike the UK where there is almost certainty that it is heading to a recession, the picture in the US is not so clear cut, especially with its super tight labour market. That said each day sees more and more large companies announce job cuts so market expectations that the Fed could choose to hike to 6% may not come to fruition. Stock markets appear to be taking this in their stride though with all major bourses in the green this morning with the UK FTSE currently at an all-time high and inching ever closer to the 8k mark for the first time. The only noteworthy event from the eurozone today is this morning’s publication of its quarterly economic forecasts with upgrades to the outlook eyed. EUR/USD has been relatively rangebound this week trading between 1.0670 and 1.08. We are currently heading higher with it currently around 1.0770

Expected Ranges

  • GBP/USD: 1.2060 - 1.2200 ▲
  • GBP/EUR: 1.1225 - 1.1325 ▲
  • GBP/AUD: 1.7280 - 1.7440 ▼
  • EUR/USD: 1.0690 - 1.0815 ▲