Daily Currency Update

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Sterling higher on Bailey comments

GBP - British Pound

The pound has rallied this morning as speculation grows that the Bank of England is about to make an about turn and raise interest rates as soon as next month in an effort to combat rapidly rising inflation in the UK.

The possibility of the Bank acting sooner than previously thought had actually weakened sterling at the end of September, as concerns over the impact it could have on an economy in the early stages of a potentially sharp spending squeeze came to the front of investors’ minds.

Despite this potential hit to the UK public’s spending power, Bank of England Governor, Andrew Bailey, seems to have made up his mind that some modest rate rises may be needed. In an interview published in the Yorkshire Post this weekend Bailey aired concerns that inflation could become "permanently embedded" and that the path of policy was "going to be higher." A change of tone like this from a central bank governor would normally be enough to send a currency rocketing higher, however this morning’s move has been pretty muted. It appears ongoing concerns over energy prices, a shortage of HGV drivers, and the end of furlough continue to weigh on the pound. GBP/USD is around 1.3650 with GBP/EUR just under 1.18.

Key Movers

Friday saw the latest US Jobs Report released with the headline Non-Farm Payrolls number missing target, showing 194k for September when around 500k was predicted. The miss was offset by the level of unemployment ticking lower to 4.8%, a bigger drop than anticipated. EUR/USD moved a little higher after the report and is currently around 1.1575, not far above last week’s 16 month lows.

Its a relatively quiet start to the week with the main potentially market moving data not scheduled until Wednesday lunchtime, when the latest US inflation numbers are due for release. One of the main talking points throughout 2021 has been the above target level of inflation in America as the economy bounces back from the impact of COVID-19. Another steady increase in the Consumer Price Index is predicted, and anything higher could benefit the US dollar as it adds more pressure on interest rate setters to tighten policy to control rising prices.

Later on Wednesday the minutes from the last Federal Open Market Committee meeting are due to be published and then on Friday US Retail Sales numbers.

From the Eurozone, tomorrow’s ZEW Economic Sentiment survey will likely be the most eye catching report, however the shared currency will likely take its cues from the steady stream of high impact releases that America will see from mid-week onwards.

Expected Ranges

GBP/USD: 1.3570 - 1.37 ▲

GBP/EUR: 1.1735 - 1.1830 ▲

GBP/AUD: 1.8520 - 1.8680 ▼

GBP/NZD: 1.9570 - 1.9720 ▼

GBP/CAD: 1.6940 - 1.7050 ▼