Daily Currency Update

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Today's Bank of England rate and monetary policy statement

GBP - British Pound

Today we have the Bank of England official bank rate and monetary policy statement. The question is, will they pump more stimulus into the UK economy through an increase in their bond buying program as the UK prepares for an increase in unemployment with end of the furlough scheme and any potential Brexit shock? The Bank of England has already cut interest rates to a record low of 0.1%, so it is highly unlikely they will go into negative territory.

Britain’s economic contraction between April and June was the biggest of any G7 nation, dropping by over 20% for the period. Monthly output by the end of July was 12% below the level pre Covid-19. Our recovery is likely to be slowed by the end of our furlough scheme in the coming months and it’ll be interesting to see how the central bank reacts to the increase in unemployment figures in the near future.

It is widely expected that any increase in the bond-buying program from the current levels of £745bn will be good for the FTSE, but bad for the pound. The Monetary Policy Committee member who is most likely to have voted for an increase this week is Michael Saunders, who has said it is "quite likely" that the economy will need more stimulus.

Sterling picked up against the Euro yesterday by 1.5%, however Jerome Powell’s positive rhetoric during the Fed’s monetary policy statement hampered any gains against the dollar.

Key Movers

The Dollar traded higher against most major currencies yesterday following the U.S Federal Reserve’s positive statement on the US economic recovery and its stance to allow inflation to run higher without changing interest rates. The Fed pledged to keep rates ‘near zero’ until at least the end of 2023, when they expect to be near ‘maximum employment’.

The dollar initially sold off before Jerome Powell’s press conference with U.S retail sales printing a worse than expected number yesterday, at 0.7% over an expected number of 1%. Retail sales are always very important given how consumer-driven the US economy is.

Expected Ranges

GBP/USD: 1.2880 - 1.3010 ▲

GBP/EUR: 1.0930 - 1.1050 ▲

GBP/AUD: 1.7690 - 1.7920 ▲

EUR/USD: 1.1730 - 1.1850 ▼