UK interest rates could peak at 4.75%
Wednesday 8 March, 2023
Daily Currency UpdateUK construction PMI posted a better than expected 54.6 versus expectations of 48.7. This points to Friday’s closely watched UK GDP data, which if better than expected, could provide support for the Pound. The Bank of England could be coming to the end of its tightening cycle, with any future rate hikes from Andrew Bailey based on how the UK economy can cope with higher borrowing costs. Positive data releases like this allow the central bank more leeway to raise rates to control inflation, which would support the Pound. Money markets are pricing in that the BoE interest rate will peak in September at 4.75%. It currently stands at 4% after ten rate increases in a row since late 2021.
Key MoversYesterday Jerome Powell, Fed Chair, spoke on day one of the testimony to congress, he said that "The latest economic data has come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated." The market reaction instantly had the US Dollar on the front foot and saw GBPUSD move more than 2.1% touching a low of 1.18098 overnight and EURUSD swing 1.3% yesterday with a low of 1.0524. The Fed's policy rate is currently in the 4.50%-4.75% range. As of December, officials expected rates rising to a peak of around 5.1% but now, investors expect this to now peak at 5.5%. Powell’s testimony continues today and we could see further volatility with the US Dollar. ADP non farm employment change data is also out today at 1:15pm which is expected at 197k, and forms a precursor to the highly anticipated non-farms payroll on Friday.
- GBP/USD: 1.1810 - 1.1900 ▼
- GBP/EUR: 1.1170 - 1.1255 ▼
- GBP/AUD: 1.7860 - 1.8100 ▲
- EUR/USD: 1.0480 - 1.0565 ▼