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Investors look ahead to ECB interest rate decision

Daily Currency Update

It is a big week ahead for the euro as the market awaits the interest rate decision this Thursday from the European Central Bank. The euro tumbled to a 20-year low (0.9952) against the USD last Thursday and made some gains back toward the end of the week but was still trading very close to parity. It closed at 1.0084 last Friday, representing a fall of 1.03% over the previous week.

Europe waits anxiously to see if Russia will reopen the flow of gas through the Nord Stream 1 pipeline on July 21. The ECB will finally start raising interest rates this week as the central bank has pre-committed to a 25 basis point rise. The question is whether the ECB will pre-commit the size of September’s hike, with rumours of a possible 50 basis point hike providing some support for the euro.

UK CPI data is due on Wednesday and political uncertainty around the next UK Prime Minister could impact the pound this week.

Key Movers

The US dollar was the strongest currency for the most part of last week and even breached parity against euro. The USD has soared this year thanks to a combination of rising US interest rates and struggling economies in Europe and China. It pushed above parity on the euro for the first time in almost 20 years last week, before easing back.

The surprise interest rate hike of 100 basis points by the Bank of Canada last week prompted speculations that the US Federal Reserve could follow at its July 27 meeting. However this is not certain, and a smaller increase is still possible.

Expected Ranges

  • GBP/USD: 1.1915 - 1.1995 ▲
  • GBP/EUR: 1.1755 - 1.1825 ▲
  • EUR/USD: 1.0105 - 1.0195 ▲