Home Daily Commentaries Sterling higher ahead of Wednesday’s US Fed interest rate decision

Sterling higher ahead of Wednesday’s US Fed interest rate decision

Monday 25 July, 2022

Daily Currency Update

The pound has started the week on the front foot today as markets digest some positive UK data released on Friday. UK Retail sales for June and Manufacturing and Services PMI for July all beat estimates adding weight to the argument that the UK economy may still be in growing, albeit at a snail’s pace. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, which produces the PMI data, commented: "UK economic growth slowed to a crawl in July, registering the slowest expansion since the lockdowns of early-2021. Although not yet in decline, with pent-up demand for vehicles and consumer-oriented services such as travel and tourism helping to sustain growth in July, the PMI is now at a level consistent with just 0.2%." He did issue a cautionary note that forward looking indicators were not looking good, so the UK economy slipping into recession could still be possible as we head towards 2023. GBP/USD is up to around 1.2035 and GBP/EUR is at around 1.1775.

Key Movers

There was some bad data from the US on Friday with a woeful Flash Services PMI for July coming in at 47, its worst reading since June 2020. Anything under 50 indicates that the sector being surveyed is contracting, and with markets expecting something around 52, this downside surprise indicates that the US economy could be slipping into recession. We have the first reading of second quarter GDP from the US due on Thursday lunchtime, with an annualised rate of growth of 0.4% the market consensus. Ahead of this, on Wednesday evening all eyes will turn to the US Federal Reserve when it announces its latest monetary policy decision, with a raise in interest rates of 0.75% predicted. The accompanying press conference from Fed Chairman, Jay Powell, will be closely scrutinised for clues on the future path of interest rate hikes, given some believe that a slowing US economy which could go into reverse before too long will act to dampen inflation that is at a 40 year high. From the Eurozone this morning we had the worst German IFO Business Climate survey result since June 2020 with a reading of 88.6 shown. This comes on the back of a poor German Manufacturing PMI which was released on Friday which came in at 49.2, its first sub-50 reading since June 2020. There is a fear that the Eurozone’s largest economy could also slip into recession, especially should Russian gas supplies be turned off as we head into autumn/winter. EUR/USD trades at around 1.0235.

Expected Ranges

  • GBP/USD: 1.1940 - 1.2100 ▲
  • GBP/EUR: 1.1730 - 1.1825 ▲
  • GBP/AUD: 1.7220 - 1.7390 ▲
  • EUR/USD: 1.0130 - 1.0300 ▲