Home Daily Commentaries Bank of England set to follow Fed in hiking rates

Bank of England set to follow Fed in hiking rates

Thursday 16 June, 2022

Daily Currency Update

Today sees the much anticipated interest rate decision from the Bank of England, with markets expecting Governor Andrew Bailey to raise rates to try to quell inflation that is at a 40-year-high. The BoE will follow last night's decision by the US Federal Reserve in raising borrowing costs. However, few expect the bank to mirror the 0.75% hike implemented by the Fed with most analysts predicting a more modest 0.25% increase, with an outside chance of 0.5%. The BoE faces a tricky balancing act as recent data has pointed to an economy that is flat lining with unemployment beginning to tick higher. As a result, the Bank needs to try to find a way of controlling price rises without pushing the economy into recession, as higher borrowing costs are not what UK consumers need right now. Much of today's focus will be on Baileys commentary about the state of the UK economy, and any optimistic/pessimistic outlook could be key in driving sterling's direction after the decision. GBP/USD dipped below 1.20 for the first time since March 2020 earlier this week, however has recovered to trade around 1.2060. GBP/EUR sits just above 1.16.

Key Movers

US Federal Reserve Chairman Jerome Powell confirmed a 0.75% interest rate rise yesterday and indicated we could see another 0.75% hike next month too. Like in the UK, US inflation is at a 40-year-high and the Fed is committed to taking aggressive action to get it back under control. The US economy is performing relatively well compared to countries in Europe, however there are signs that it is starting to slow with recent retail sales, home sales and consumer confidence data all missing target. The accompanying economic projections produced by the Fed showed that they expect the economy to slow throughout the year and for unemployment to tick higher. Many economists are now saying they expect a recession in the world's largest economy as we near 2023 which would actually assist controlling price pressures, however Powell dismissed this theory when raised in the press conference following the announcement. The Fed has a dual mandate; Price Stability and Maximum Employment and although policymakers will be reluctant to admit this it is clearly the former that is the priority at the moment. Global stock markets are lower this morning after the decision, with the dollar gaining across the board. EUR/USD is back under 1.04.

Expected Ranges

  • GBP/USD: 1.1935 - 1.22 ▼
  • GBP/EUR: 1.1475 - 1.1700 ▲
  • GBP/AUD: 1.7260 - 1.7480 ▼
  • EUR/USD: 1.0300 - 1.0470 ▼