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FED decision anticipated

Daily Currency Update

There has been little to no data for the UK since Monday. The Pound is therefore softer ahead of the Bank of England’s interest rate decision on Thursday, being the key driver for the currency this week. The central bank is expected to raise its bank rate by 50 basis points to 4% despite a string of poor domestic data of recent and another wave of public-sector strikes. Today is expected to be the biggest set of strikes in over a decade with up to 200,000 teachers to ambulance drivers walking out in demand of higher pay. GBP/USD dropped below 1.2300 briefly yesterday after an early fall from 1.2400 to 1.2320. GBP/EUR has seen a similar fall now trading just above 1.1300 at 1.1320 currently.

Earlier this morning mortgage lender Nationwide said its house price index fell for a fifth straight month, the longest sequence of declines since 2008. A busier day ahead is expected with macroeconomic data coming from the UK, Europe, and the US. Notably, this evening’s Federal fund rate due for release at 7 pm this evening is the pick of the bunch, with the expectancy of the Fed raising interest rates by 25 basis points. Flash CPI data is expected from Europe, ahead of their central bank’s decision on Thursday, and manufacturing data is expected from all three locations. Sterling movement is likely to be a little more volatile against the EUR and USD in the next 24 hours.

Key Movers

The US Federal Reserve policy decision is anticipated later today. The expectation is that the Fed will raise interest rates by 25 basis points, after a 50-basis point rise in December and three hikes of 75 basis points in the meetings prior to that. The pace of the hikes is now slowing in response to the economy slowing and that the peak inflation has passed - There have been 6-month falls in US CPI. Market participants will eagerly anticipate Fed chair Jerome Powell's comments for any early indication that a rat cut will be seen later in the year. Powell and other Fed officials have repeatedly warned in recent weeks of the need to hold rates above 5% for some time, to dampen this speculation, but any indicators on whether a rate cut is planned for this year would weaken the US dollar. The opposite will be seen if a longer time span is given or not at all. GBP/USD sits lower, having broken below 1.2300 in the past 24 hours. EUR/USD is stronger this morning after falling to 1.0800 early yesterday.

Expected Ranges

  • GBP/USD: 1.2210 - 1.2440 ▼
  • GBP/EUR: 1.1250 - 1.1410 ▼
  • GBP/AUD: 1.7330 - 1.7580 ▼
  • EUR/USD: 1.0780 - 1.0950 ▲