Daily Currency Update

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Central Banks Back in Focus

GBP - British Pound

During last week’s trading GBP dropped 5% against the dollar and 3% against the euro. This can mainly be attributed to the UK's hard stance with the EU negotiating a Brexit deal and our refusal to budge on a key few issues (including fishing rights). The odds of a no deal Brexit seem ever increasing as each week of negotiating passes, with some institutions currently setting the odds at 50:50.

Boris Johnson’s refusal to do a U-turn on the Internal Market bill has only caused more downward selling pressure on sterling. MPs will begin debating the bill today, with many former MPs, including Tony Blair, encouraging MPs to reject the ‘shameful’ endeavor to overrule parts of the Brexit withdrawal agreement.

This week the main focus will be back on the Bank of England, with the interest rate decision and monetary policy summary. It is widely expected that interest rates will remain on hold for now, however given the increased Brexit uncertainty and the uptick in Covid-19 cases in the UK we could see a dovish surprise from the Bank of England. This would be an increase in our current quantitative easing programme, rather than a change in interest rates. Any change in quantitative easing would be good news for the FTSE, but bad for sterling.

Key Movers

The ECB meeting on Thursday sent the euro soaring against sterling as GBPEUR dipped below the 1.09 handle. Inflation is becoming a major concern for the Eurozone, partially brought about by the strength of the euro. The euro is up over 10% against the dollar in the last 6 months.

The US Federal Reserve are meeting on Wednesday for the last time before elections in November. The expectation is that they will set new economic and interest rate projections that run into 2023. This is also the first meeting since the Fed moved to a monetary policy regime in which they will allow inflation to run higher without altering rates in order to improve the economy.

Expected Ranges

GBP/USD: 1.2790 - 1.2910 ▼

GBP/EUR: 1.0780 - 1.0915 ▼

EUR/USD: 1.1805 - 1.1920 ▲