Bank of England interest rate announcement to hold headlines
Thursday 4 August, 2022
Daily Currency UpdateThe big economic data came from the US yesterday, July ISM services PMI. A better than expected announcement saw growth return to the services industry, beating expectation. It was up from the previous month showing that the sector actually accelerated rather than the expected slowdown.
At the same time Factory Orders for June grew more than expected, 2% compared to May. These strong results have called into question whether the US is slipping into recession and the chances of a 75 basis point (bp) hike by the US Federal Reserve in September have risen as a result. The USD jumped on the news and knocked back gains for the GBP and EUR earlier in the day. GBP/USD had broken 1.2200 prior to the news but touched 1.2110 following it. A recovery since has taken the currency pair back above 1.2150. EUR/USD touched 1.0200, before slipping to 1.0130. A recovery since has seen the currency pair just under 1.0200 again.
All eyes will be on the UK interest rate announcement at midday today. A 0.50% interest rate hike is expected by some to be announced by the Bank of England, but the decision makers have disappointed in the past by only raising interest rates by 0.25%, when a larger increase was expected. The Bank of England continues to tackle inflation that currently sits at 9.4% and it’s expected to grow to 11% this year. Other banks globally have seen more aggressive interest rate hikes in their tackle of domestic inflationary concerns. Is today the day that the Bank of England follows suit? Either way, a volatile day for GBP is possible with movement increasing in anticipation of the announcement and then potentially reacting on the outcome.
Key MoversThis morning we have seen German factory orders come in at -0.4% for June, better than expected but the 5th contraction in a row after last month’s reading was revised into negative territory. The German economy is looking very fragile after a weak manufacturing PMI recently, and falling business confidence, partly based on the area’s energy supply. As Germany is one of the largest economic hubs within the eurozone, this is further fuelling recessionary concerns within Europe. GBP/EUR continues to trade just below 1.2000, with any losses for the currency pair not falling below 1.1900 this week. This may come under threat today dependent on the UK interest rate announcement. EUR/USD has dropped back below 1.0200 this week and touched a session low of 1.0130 yesterday after the US announced better than expected ISM services PMI.
- GBP/USD: 1.2030 - 1.2290 ▲
- GBP/EUR: 1.1810 - 1.2070 ▲
- GBP/AUD: 1.7270 - 1.7620 ▲
- EUR/USD: 1.0130 - 1.0240 ▲