Daily Currency Update

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A data heavy week dominated by central bank decisions

GBP - British Pound

The pound has been surprisingly quiet, with direction being taken from other currencies including the Euro and US Dollar. GBPUSD did break above the magic 1.39 overnight, having spent much of yesterday in the 1.38s. GBPEUR also broke the psychological 1.17 barrier in the early hours of this morning but it is yet to be seen if this break can be sustained.

All eyes in the UK remain on tomorrow’s lunchtime announcement from the Bank of England. There isn't much expected in terms of changes in interest rates, but the market will watch for other signs that the Bank of England may want to ease monetary policy, including extending its bond buying programme in the same way Lagarde has implemented with the ECB. We have also seen a recent phenomenon of a sharp rise in global bond yields, and we will see if Andrew Bailey will have anything to say about this and if any measures are required.

In a webinar last week, Andrew Bailey stated that though negative interest rates are a contingency plan the central bank have at their disposal, that is not necessarily a path they will have to take. This gave the market some confidence in the pound, suggesting that interest rates may actually increase sooner than initially thought during the height of the pandemic.

Key Movers

US data has dominated the market this week and today is no different. Yesterday saw the release of the US retail sales, a figure that came out significantly worse than expected at -3%. Though this was worrying for the US economy, the January numbers were revised even higher, with what was already a positive number. After December's stimulus package, spending was on the rise in the US, and though the February number is weak, expectation is that Biden's latest package, and the checks that are going out to US households this month, will push consumer confidence up again for March and beyond.

All eyes are on the Federal Reserve's interest rate announcement this evening. Jerome Powell has stated previously that he is not concerned with the notion of rising inflation or bond yields, however is expected to discuss a changing economic outlook which may result interest rates being increased sooner than initially thought.

The Euro was buoyed by yesterday's stronger German ZEW survey. The survey is a forward looking data point and hence deemed more important than those that tell us about the past. The move in the Euro was temporary, and all its early gains were lost overnight after concerns returned to the market of a slow vaccine rollout, a lack of vaccine supply, suspension of the Astra Zeneca virus in certain countries in the Eurozone, and a dovish central bank that is continuing to loosen its monetary policy to prop up the Eurozone economy.

Expected Ranges

GBP/EUR: 1.1660 - 1.1705 ▲

GBP/USD: 1.3880 - 1.3925 ▲

EUR/USD: 1.1885 - 1.1915 ▼

GBP/AUD: 1.7800 - 1.8155 ▲