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Bank of England in focus

Thursday 5 May, 2022

Daily Currency Update

It’s a big day for the UK economy and also the pound today with the Bank of England currently expected to reveal a potential 25bps interest rate hike, raising the rates to 1.00%. Furthermore, there are several other factors that could impact the pound including local elections and subsequent political risks, as well as ongoing issues over the cost of living and inflation in the UK. For the BoE meeting today, markets have accounted for another 25bps interest rate hike with an expectation of a further 150bps in hikes over the coming year. Should the guidance from the central bank defer from this narrative and we see hints or comments that the rate hikes over the coming year may not meet this expectation, we could potentially see the pound fall further.

Key Movers

Yesterday we saw the US Federal Reserve announce their largest interest rate hike in over 20 years, raising rates by 50bps to help curb inflation across the US. In doing so, this was also the first time since 2006 that the US central bank have raised interest rates in consecutive meetings. The market had an interesting reaction to this with the US dollar coming under serious pressure overnight post the FOMC press conference late yesterday evening.  The US dollar index – which measures the US dollar against a basket of other major currencies – posted its biggest single day loss of close to 1% since March. The trigger for this dramatic fall likely came about not from the actual interest rate hike itself but from Fed Chair Jerome Powell’s comments that larger adjustments of 75bps and up are not on the table. GBP/USD rose nearly 2 cents, topping at around 1.2640 before gradually correcting over the course of the evening, with the pair currently sat around 100pips lower at around 1.2535.

Expected Ranges

  • GBP/USD: 1.2480 - 1.2610 ▼
  • GBP/EUR: 1.1805 - 1.1920 ▲
  • GBP/AUD: 1.7305 - 1.7450 ▲
  • EUR/USD: 1.0510 - 1.0640 ▲