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The US Dollar gains on Fed minutes

Thursday 5 January, 2023

Daily Currency Update

GBP/USD has slipped back this morning after coming close to breaking the 1.21 level yesterday. The main catalyst for the move was yesterday evening’s release of the minutes from the last Federal Reserve interest rate decision that reinforced the message that the Fed has some way to go before it pauses its hiking cycle to control inflation. It was another relatively quiet day from the UK with only the Bank of England's mortgage approval data of note. The latest release from the Bank showed that 46k mortgages were approved in November 2022 lower than the expected 54k reflecting the pressure that is growing on the housing sector as the UK enters what is expected to be a very tough year economically. GBP/USD is currently just above 1.20 with GBP/EUR around 1.13.

Key Movers

Stock markets open lower this morning reflecting the content of the minutes of the latest Federal Reserve interest rate decision which showed we can expect around another 75bp of hikes before the world’s largest central bank chooses to pause. With the US Consumer Price Index having fallen from 9.1% to 7.1% in the second half of last year some market participants were expecting an indication that the Fed may choose to end its hiking cycle sooner than expected. The minutes however sent a message that we can expect at least two more interest rate rises from the Fed (possibly 50bp in Feb then 25bp in March) before it chooses to pause. The US dollar which had lost some ground earlier in the week recouped some of these losses on the release although the moves were fairly modest. Markets will now be looking to tomorrow’s eurozone inflation reading at 10 am which is expected to show a drop from 10.1% to 9.6% and then later in the day the US jobs report for December. The unemployment rate is expected to hold at 3.7% with 200k people predicted to be added to payrolls for the month. EUR/USD is back down to 1.0610 after peaking around 1.0640 yesterday morning.

Expected Ranges

  • GBP/USD: 1.1960 - 1.2080 ▼
  • GBP/EUR: 1.1265 - 1.1385 ▼
  • GBP/AUD: 1.7530 - 1.7700 ▲
  • EUR/USD: 1.0560 - 1.0680 ▼