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Bank of England and US Federal Reserve in focus

Daily Currency Update

The pound suffered some losses last week against many of its major rivals. This weakness continued into this week as GBP/USD fell to its lowest level in about a month after falling below the 1.2250 mark this morning. The trigger for sterling weakness this morning was the release of GDP month-on-month data that showed that the UK economy has contracted by roughly 0.3%. This was compared to the 0.2% contraction that markets were expecting. Looking ahead to this week we will see the Bank of England announce its further guidance around monetary policy on Thursday. The BoE could be set to raise interest rates once more as they continue to try and combat rising prices across the UK.

Key Movers

The US dollar started this week on the up as it benefitted from its status as a safe haven currency – one that attracts investment during times of risk aversion. The dollar index – which measures the US dollar’s strength against a basket of its closest rivals – has risen for the fourth straight day and is close to hitting a multi-year high that it set back in May this year. US CPI data released last Friday showed that inflation had jumped back up once more to 8.6% after it was expected to come in at 8.3%. The US dollar jumped up immediately after it became clear that an interest rate hike at this week’s meeting is now likely in order to continue to combat rising inflation. For the US and global markets this week, the key event will be the US Federal Reserve meeting on Wednesday. The market is anticipating another potential 50bps hike from the central bank following on from their 50bps hike at the previous meeting.

Last week’s European Central Bank meeting provided the markets with plenty of volatility and made it a very turbulent week for the euro. The euro initially pushed higher after the ECB meeting, but this did not last long at all, after coming under some pressure. This was partly due to the ECB’s lack of guidance around how it could handle the pressures that they will likely face when ending their quantitative easing in July. This coupled with the risk averse market mood, and the US dollar benefitting from its safe-haven status, meant that the euro has lost some ground vs the US dollar. This morning EUR/USD is sat at around 1.0460.

Expected Ranges

  • GBP/USD: 1.2205 - 1.2320 ▼
  • GBP/EUR: 1.1635 - 1.1750 ▼
  • GBP/AUD: 1.7420 - 1.7515 ▼
  • EUR/USD: 1.0440 - 1.0525 ▼