Home Daily Commentaries Pound on the defensive ahead of FOMC rate decision tomorrow

Pound on the defensive ahead of FOMC rate decision tomorrow

Tuesday 1 November, 2022

Daily Currency Update

The pound is on the defensive against the US dollar and the euro as longer-term BoE interest rate expectations are coming under sustained pressure, despite the market forecasting another 75 basis point rate hike to 3% by the Bank of England later this week. There has been a lot of volatility with the UK market rate expectations, amid the many fiscal policy U-turns. Money markets are currently pricing in a peak bank rate of 4.75% which may provide the pound with some support for the short term. The Federal Reserve is widely expected to raise its interest rate by 75 basis points to a range of 3.75% to 4.00%, its fourth such increase in a row. However, for the December meeting, fed funds futures have priced in a 55% chance of a 50 basis point rate increase, which is down from about 67% last week.

Key Movers

The euro dropped 0.8% against the dollar on Monday. The euro barely reacted after data released on Monday that showed eurozone inflation came in higher than expected at 10.7%, a fresh record high. While the ECB awaits stats in December to deliver its growth and inflation forecasts, yesterday's inflation numbers could pressure the ECB to hike rates by another 75 basis points in December.

Expected Ranges

  • GBP/USD: 1.1505 - 1.1585 ▲
  • GBP/EUR: 1.1595 - 1.1655 ▲
  • EUR/USD: 0.9905 - 0.9965 ▲