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Markets await US Federal Reserve interest rate decision

Daily Currency Update

The pound has traded in a narrow range versus both the US dollar and the euro this week as the markets await key interest rate decisions from the US Federal Reserve this evening, and the Bank of England tomorrow. The consensus is that both banks will likely hike interest rates by 0.25% however commentary about future moves will be the key area of interest.

The outbreak of war in Ukraine has created a crisis and one of the consequences of this is that growth could be impacted as countries around the world look to place economic sanctions on Russia. Russia's economy could contract dramatically this year. However this could also have a knock on effect on the rest of the world.

With economic growth in the UK likely to be sluggish this year, and inflation continuing to rise, Andrew Bailey faces a tricky task of bringing price rises under control whilst not putting the economy into reverse. Talks are continuing between Russia and Ukraine. As a result of this uncertain climate, the US dollar continues to be favoured by investors for its safe haven status. GBP/USD is around 1.3050 and GBP/EUR is just under 1.19.

Key Movers

This evening the US Federal Reserve is expected to raise interest rates for the first time since 2018 and indicate that we could see a series of rate hikes throughout the rest of the year. Some analysts expect the Fed to raise rates at each of the remaining seven meetings this year to fight inflation that currently sits at 7.9%, a 40 year high. The prospect of higher rates, as well as the ongoing market risk aversion on the back of the war, means the US dollar will likely continue to be favoured by investors for now. The decision is announced at 6pm this evening. Should the Fed decide that more aggressive action is needed to control price rises and raise rates by 0.5%, then the dollar could rally. However any messaging over the impact of the war on future policy moves will also be keenly noted. EUR/USD is currently back under 1.10.

Expected Ranges

  • GBP/USD: 1.2900 - 1.3170 ▲
  • GBP/EUR: 1.1795 - 1.1960 ▼
  • GBP/AUD: 1.7970 - 1.8155 ▼
  • EUR/USD: 1.0850 - 1.1100 ▼