Home Daily Commentaries US dollar slips as ECB mulls 50 basis point interest rate hike

US dollar slips as ECB mulls 50 basis point interest rate hike

Tuesday 19 July, 2022

Daily Currency Update

GBP/USD is heading back towards the 1.20 handle as the US dollar lost ground on Monday as markets reigned in their expectations for a 1% interest rate hike from the US Federal Reserve at its July 27th meeting. Traders of the pound will be looking to tomorrow’s latest inflation print from the UK which is due at 7am. The Consumer Price Index is expected to show an annualised rise of 9.3% for June up from the 9.1% uptick seen in May. Should the release see inflation beat estimates then the pound would normally benefit as it would mean the Bank of England would be more likely to consider more aggressive action to control prices. However, in the face of a slowing economy and the consumer spending squeeze, this usual rule of thumb isn't guaranteed, as higher borrowing costs are far from ideal given inflation is at a 40-year high. The only event today of note is Bank of England Governor, Andrew Bailey, giving a speech at Mansion House at 4pm. GBP/EUR is back down to 1.1720.

Key Movers

There are reports this morning that policy makers at the European Central Bank are mulling a 50 basis point interest rate hike at this Thursday’s interest rate decision. Eurozone inflation is currently at its highest level since the single currency was introduced with benchmark CPI hitting 8.6% for June. Like most central banks around the world, the ECB are dealing with far above target inflation and slowing growth, so it has to tread a careful path regarding rate hikes. However, the rumours have benefitted the euro with EUR/USD back above 1.02 on the news. The spectre of Russian gas supplies not being turned back on, when Thursday’s annual maintenance of the Nordstream 1 pipeline is scheduled to end, is hanging over markets. However if the taps are turned back on and the ECB does decide to hike interest rates by 50bp then we could see a strong end to the week for the shared currency.

Expected Ranges

  • GBP/USD: 1.1930 - 1.2040 ▲
  • GBP/EUR: 1.1690 - 1.1820 ▼
  • GBP/AUD: 1.7400 - 1.7560 ▼
  • EUR/USD: 1.0140 - 1.0300 ▲