Home Daily Commentaries 6-day rally for GBP against USD ends

6-day rally for GBP against USD ends

Daily Currency Update

On Wednesday, the pound stayed well off recent lows but ended a six-day rally against the US dollar after Prime Minister Liz Truss spoke at the Conservative Party conference. In her speech, which has been marked by U-turns in relation to the mini-budget, tax policies, and internal party division, the Prime Minister admitted her policies would cause "disruption". But she said, "the status quo is not an option" and "we must stay the course". The speech came against a backdrop of financial and political turmoil following the government's mini-budget which in part led to GBP dropping to an all-time low against the USD.

Offering some support to the pound, the Bank of England has been raising interest rates and is expected to add 75 basis points to borrowing costs when it meets on 3rd November. The BoE so far has not kept pace with the US Federal Reserve, which has vowed to continue its aggressive interest rate hikes. Amid recession fears and concerns around UK fiscal policy, the pound is down 16.5% versus the US dollar so far in 2022.

Key Movers

ECB President Lagarde declined to say whether inflation has peaked and acknowledged that interest rate hikes will be needed at several meetings to curb demand. EUR/USD remains in a downtrend with levels as low as 0.9200 possible if fiscal difficulties pick up or Russia-related energy difficulties worsen. To add to this gloomy outlook for the euro, the Eurozone reported that business activity slowed, as shown by the S&P Global PMI survey, further cementing the case that Europe is getting into a recession and a potential stagflation scenario looms. Services activity weakened in Germany, Italy, and Spain, but not France, though it grew weaker than estimated.

Expected Ranges

  • GBP/USD: 1.1315 - 1.1395 ▲
  • GBP/EUR: 1.1405 - 1.1475 ▲
  • EUR/USD: 0.9905 - 0.9975 ▲