Daily Currency Update

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Focus moves to the US dollar

GBP - British Pound

Sterling is on the back foot going into Thursday as the fallout from Monday's government announcement takes hold. The four week delay to the end of Covid-19 related restrictions may have a larger negative impact on the economy, but it is strength from the US dollar which is really having the major impact on currency markets today.

With inflation on the rise in the UK, there is speculation that the Bank of England may have to tighten monetary policy sooner than it initially anticipated. This may govern movement with the pound in the coming months.

Key Movers

The US dollar strengthened yesterday which has had knock on effects on the euro and the pound. This was governed by the news from the Federal Reserve in their policy announcement at 7pm UK time yesterday. Jerome Powell, the chair of the Fed, has moved the timelines on when the US Central Bank will consider interest rate hikes significantly forward.

Up until yesterday, the market was anticipating that rates in the US will stay at close to zero up until end of 2024, however there is now an expectation that there could be two rate hikes in 2023. With inflation at the highest in 13 years, the meeting yesterday demonstrated that the Federal Reserve are now considering rate hikes.

The central bank maintained that they believe the 5% inflation reading is 'transitory', and that inflation will tail off over time, but they have raised their inflation target by a whole percentage point to 3.4%. There weren't any set times mentioned on when they will look to taper their asset purchase programme.

The GBPUSD rate has moved over 1% lower on the news and has now broken the psychological 1.40 level. EURUSD has seen similar moves, which has helped drag GBPEUR higher, with the currency pair breaking through 1.17 for the first time since the start of April 2021.

Expected Ranges

GBP/USD: 1.3880 - 1.3970 ▼

GBP/EUR: 1.1650 - 1.1710 ▲

EUR/USD: 1.1890 - 1.1965 ▼

GBP/AUD: 1.8110 - 1.8395 ▲