Daily Currency Update
The Bank of England implemented it’s biggest interest rate rise in 27 years yesterday, raising rates by 50 basis points (bp) from 1.25% to 1.75%. Following the announcement, the Bank also provided its latest quarterly economic forecast, which predicted a recession will start in the fourth quarter of 2022 and likely run till the end of 2023. The inflation forecast was also increased from 11% to 13.3%, which would be a 42-year-high if realised. Sterling fell on the news, but wasn’t as volatile after meeting the expected rate hike. GBP/USD fell from 1.2190 own to 1.2080 on the news, but has since touched 1.2175. However, the losses for GBP/EUR have remained, with the currency pair dropping from 1.1960 down to 1.1860 at the lows and currently trades under 1.1900. Despite the recession confirmation from the Governor of the Bank of England Andrew Bailey, market participants believe the recession won't last as long as predicted, and will be a shallow recession in comparison to the Global Financial Crisis in 2008, or the economic downturn of lockdown in 2020.
Key Movers
The U.S. July employment report later in today’s session is the only macroeconomic release to look out for. Market participants will be looking out for clues on how the Federal Reserve will view the strength of the world’s largest economy. Non-farm payrolls are expected to increase by 250,000 jobs last month, a slowing in growth from 372,000 in June. That would mark the 19th straight month of payrolls expansion, but would be the smallest increase in that string of releases. The cooling in job growth could ease pressure on the Fed to deliver a third straight interest rate increase of 75 basis points at its next meeting in September. EUR/USD has ranged from 1.0130 to 1.0290 over this week and unless this misses its expected figure, it will likely remain within this range as we close the week.
Expected Ranges
- GBP/USD: 1.2080 - 1.2190 ▲
- GBP/EUR: 1.1820 - 1.1950 ▼
- GBP/AUD: 1.7320 - 1.7520 ▼
- EUR/USD: 1.0130 - 1.0290 ▲