Home Daily Commentaries Sterling strengthens against the US dollar and euro

Sterling strengthens against the US dollar and euro

Daily Currency Update

Bank of England Governor, Andrew Bailey, was questioned yesterday at the monetary policy report hearing. He stated that monetary policy faces its biggest test in 25 years with surging inflation, worsened by the Russia-Ukraine war, and COVID lockdowns in China. These comments mirror that of US Federal Reserve Chair, Jerome Powell, who stated at the weekend that getting inflation down to 2% will include some pain such as people losing value in their pay checks.

As the UK contemplates inflation potentially reaching 10%, aggressive interest rate hikes seem a likely tool to tackle surging prices as the Bank of England tries to steer the country away from a recession before the end of the year.

GBP/USD has been on the climb since the announcement, gradually gaining from 1.2250 up to 1.2360 at 7am this morning. GBP/EUR has seen a similar drift higher, going from 1.1775 to just over 1.1800 earlier this morning.

At 7am this morning, Sterling was further bolstered by local data that showed the number of people claiming unemployment benefits fell by 56,900 and the jobless rate now stands at its lowest level since the early 1970s. It is also the fifth month in a row that the claimant count number has fallen by more than 50,000. GBP/USD has continued to rise to around 1.2436 at the time of writing and GBP/EUR to around 1.1884.

Key Movers

US retail sales is due to be released in the US this afternoon and later in today’s session Jerome Powell is due to speak about inflation at Wall Street Journal's Future of Everything Festival in New York. US retail sales month-on-month is expected to rise from 0.5% to 1%, but the release is only likely to act as a prelim to Jerome Powell’s comments later in the day. Market participants will likely look to decipher his address to understand inflationary concerns, interest rate hikes, and the state of the US economy.

Later today European Central Bank President, Lagarde, is due to speak at a charity event in Germany. It’s unclear what sound bites will be on offer regarding inflation, interest rates and the Russia-Ukraine war, but the event will likely be monitored closely all the same. EUR/USD has seen a similar bounce to GBP/USD and is just under 1.0500 at the time of writing.

Expected Ranges

  • GBP/USD: 1.2350 - 1.2520 ▲
  • GBP/EUR: 1.1780 - 1.1940 ▲
  • GBP/AUD: 1.7630 - 1.7830 ▲
  • EUR/USD: 1.0410 - 1.0550 ▲