Home Daily Commentaries All eyes shift to next week’s US Federal Reserve and Bank of England interest rate decisions

All eyes shift to next week’s US Federal Reserve and Bank of England interest rate decisions

Daily Currency Update

The pound started the week pulling back quite sharply from last week’s near four-decade low against the US dollar. After the UK CPI data release, GBP plummeted more than 2.2% off the monthly highs against the US dollar with GBP/USD once again threatening a plunge towards the yearly lows.

All eyes are shifting to major central bank interest rate decisions next week from the US Federal Reserve and Bank of England. The BoE is expected to raise rates by 50bps next Thursday although a 75bp hike cannot be discounted, whereas the Fed is expected to announce another 75bp rate hike next Wednesday but a 100bp hike hasn’t been ruled out, especially after last week’s US inflation data release.

Depending on the outcome of both meetings, the rate differential between the two currencies could either stay the same or widen by up to 50 basis points. If the UK/US rate differential widens further, the pound could fall deeper against the US dollar.

Key Movers

There seems to be little stopping the mighty dollar, already up 15% against a basket of currencies this year. Fed funds futures now point to a 25% chance of a 100 basis point hike at next week’s meeting. That is giving support to the USD, which has already pushed the EUR to a two-decade low and GBP to its weakest in nearly 40 years against the US dollar.

Overnight, the World Bank warned that the world may be edging toward a global recession as central banks across the world simultaneously increase interest rates to combat persistent inflation.

While the Fed meeting will be the biggest event for financial markets next week, the focus will also be on an expected increase by the Bank of England.


Expected Ranges

  • GBP/USD: 1.1345 - 1.1415 ▼
  • GBP/EUR: 1.1405 - 1.1465 ▼
  • EUR/USD: 0.9935 - 1.0005 ▼