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US Federal Reserve prepared to act quickly

Thursday 7 April, 2022

Daily Currency Update

The minutes to the March FOMC meeting released yesterday signalled that the US Federal Reserve are prepared to act more quickly to contain rampant inflation with aggressive interest rate rises and the rapid shrinking of the Federal Reserve's balance sheet. This will likely see one or two 50 basis point interest rate hikes in the future, which would bring the interest rate up to 2.5% - 3% by the end of the year. The news hasn’t supported the US dollar’s recent gains as caution has now entered the market around how this move could cut growth in the world’s largest economy, and the roll-on effect on global growth. GBP/USD has broken above 1.3100 this morning, after recent lows of 1.3050 and EUR/USD was back above 1.0900. Earlier this morning a report from Halifax House Price Index showed that UK house prices rose again in March for the ninth month in a row. The increase of 1.4% was also the biggest jump since September last year. This has likely offered some support for the pound in its push above 1.3100 against the US dollar and has aided GBP/EUR breaking back above 1.2000.

Key Movers

European data on Wednesday showed that German industrial production rose 0.2% on the month in February. This is better than expected but still a hefty drop from the gain of 2.7% the previous month. This comes ahead of the release of Eurozone retail sales data expected today. Increased sanctions on Russia, and Ukraine’s call on the West to do more and implement sanctions that are economically destructive enough for Russia to end the war, have continued to weigh on the euro. Both the pound and the US dollar have gained heavily against the single currency over the last month with both pairs sitting at around 1.2020 and 1.0880 respectively at the time of writing.

Expected Ranges

  • GBP/USD: 1.3050 - 1.3160 ▲
  • GBP/EUR: 1.1970 - 1.2080 ▲
  • GBP/AUD: 1.7420 - 1.7650 ▲
  • EUR/USD: 1.0820 - 1.0930 ▼