Daily Currency Update

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Focus on the US dollar remains

GBP - British Pound

Sterling remains resilient against most of its counterparts bar the US dollar. Despite weak data released this morning in the form of UK Retail Sales, which posted a negative 1.4% reading versus expectations of a 1.5% rise, Sterling remains relatively strong, with all eyes on the Bank of England's next move.

Current expectations are that interest rates will remain low in the UK potentially until 2023, but this forecast could be bought forward again if inflationary pressure take hold in the UK as they have in the US.

Key Movers

The US Dollar continued to strengthen overnight against most major currencies, apart from the Japanese Yen. We saw weak US data posted yesterday in the form of jobless claims and Philly Fed Manufacturing, but this did nothing to deter the US currency.

The market continues to focus on the comments from the Federal Reserve on Wednesday, with Jerome Powell upgrading economic projections in the US post the pandemic, raising his expectations on inflation and stating that tapering of their asset purchase programme and increasing interest rates could happen sooner.

Though the US dollar strengthened, the stock markets have dropped on the news from the US Central Bank, with the Dow Jones Industrial Average a real victim.

The weakest currency yesterday was the Swiss Franc which dropped nearly a percent against the US dollar. The Swiss Central Bank met yesterday morning, and unanimously voted to keep their negative 0.75% rate exactly where it is, with no desire to consider the idea of tightening monetary policy any time soon. This divergence between the Federal Reserve and Swiss Central Bank was picked up by the markets.

German PPI data was also released this morning showing that inflationary pressure isn’t just confined to the US. It reported a reading of 1.5% versus an expectation of 0.7%. Prolonged high inflation means the European Central Bank could look at rate increases or changes to their own monetary policy, which could support the euro.

Expected Ranges

GBP/USD: 1.3860 - 1.3920 ▼

GBP/EUR: 1.1630 - 1.1700 ▲

EUR/USD: 1.1880 - 1.1935 ▼

GBP/AUD: 1.8260 - 1.8510 ▲