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Central banks discuss interest rate hikes

Daily Currency Update

GBP - British Pound

As more and more central banks globally are alluding to potential interest rate hikes, Bank of England Governor, Andrew Bailey is the latest to add fuel to the fire. At a G30 meeting on Sunday, Bailey warned that it “will have to act” to curb inflationary pressure, making no attempt to contradict financial market moves that have priced in the first interest rate increase before the end of the year.

Bailey continued to say that inflation in the UK has already risen and could rise further, in ways that would warrant action to tame medium-term inflation. The move will likely be positive for the pound, as investors could look at the hike as a sensible option in the face of growing global inflation.

Key Movers

The US saw a weaker-than-expected non-farm payroll figure on Friday, which investors have largely shrugged off. The US dollar has been one of the strongest performers in the market in recent weeks, however managed to lose a number of those gains towards the end of last week, particularly against the pound.

The US data releases in the next few weeks are likely to be a far more important watch for investors, as this will be the first month without the $300 employment benefit for many, meaning we could see a drop off in consumer spending and therefore possibly inflation.

In the Eurozone, the euro continues to remain week, particularly in the face of supply bottlenecks, soaring energy prices, weak economic data, and a dovish central bank. The euro could continue its slip against major currencies, at least until the abundance of data releases later in the week such as flash services and manufacturing PMIs, which could have an impact.

Expected Ranges

  • GBP/USD: 1.3640 - 1.3810 ▲
  • GBP/EUR: 1.1765 - 1.1940 ▲
  • GBP/AUD: 1.8460 - 1.8665 ▲