Daily Currency Update

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Prospect of rate hike supports Sterling

GBP - British Pound

The UK Consumer Price Index’s 12-month rate came in at 3.1% in September compared to 3.2% recorded in August, missing expectations. Meanwhile, the core inflation gauge (excluding volatile food and energy items) retreated to 2.9% from 3.1% registered in August. GBPUSD reversed its direction from Tuesday’s highs and fell below 1.3800 on Wednesday following the UK’s inflation data. However, it did rebound slightly during the New York hours.

The probability of a rate hike before the end of the year stays unchanged, suggesting that the recent decline in GBP/USD is a correction rather than a reversal of direction. There are no major data releases today. Tomorrow we’ll see the Flash Manufacturing PMI & Flash Services PMI.

Key Movers

The Federal Reserve released its Beige Book on Wednesday, as investors looked for fresh clues regarding the persistence of input price pressures. Before the Fed goes into the blackout period on October 23, this publication could hint at a reduction of asset purchases as early as November, which in turn could provide a boost to the US Treasury bond yields and the US dollar.

Attention now turns towards the US weekly Jobless Claims release and commentary from the Fed for fresh incentives on trading the US dollar amid a relatively data-light week.

EU annual inflation was confirmed at 3.4% YoY in September, the core annual reading printed at 1.9% which validates the ECB’s wait-and-see stance when it comes to changing monetary policy. For EUR/USD, upward momentum has improved a little and the bias for today is on the upside. That said, barring a surge in momentum, any advance is unlikely to challenge the major resistance at 1.1680.

Expected Ranges

GBP/USD: 1.3750 - 1.3860 ▲

GBP/EUR: 1.1815 - 1.1885 ▲

GBP/AUD: 1.8380 - 1.8505 ▼

EUR/USD: 1.1595 - 1.1675 ▼