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Central bank decisions dominate currency markets

Daily Currency Update

GBP - British Pound

Two central bank decisions continue to dominate the currency markets this week. The Bank of England on Thursday and the Federal Reserve tomorrow evening are both poised to be two of the more eventful central bank meetings of recent times.

The Bank of England could increase interest rates on Thursday and if they do, this will most likely be by 0.15%. If this happens, Sterling could benefit from the move. However, there are suggestions that the decision is expected to be a close one, with some sections of the Bank of England committee thinking that waiting for their meetings in December or February might be a better idea. Either way, Sterling, which has started the week relatively quietly, could be more volatile towards the end of the week.

Key Movers

All eyes are on the US dollar at the moment, with the Federal Reserve's rate announcement tomorrow evening. US ISM manufacturing data came out relatively positively yesterday, adding further weight to the argument that Jerome Powell and his team at the Fed should now look to start tapering their bond buying programme.

The idea of the tapering process beginning in the US has been one of the market's worst kept secrets in recent months. Powell's rhetoric has been that inflation has met the threshold of "substantial further progress" set by officials and employment has "all but met" their goals to start tightening monetary policy. However, it’s the extent and the speed at which the tapering process will be undertaken that the market will likely be focusing on.

Powell has stated that the Fed will taper at $15 billion per month, however if inflation continues to soar, they may be forced to increase the pace of this. This increase in pace could benefit the US dollar even further. On the other hand, if tapering does not begin this month and is pushed into December, the US dollar may suffer.

With the latest US employment data out this Friday in the form of non farm payrolls, a weak posting here could also pour some cold water on the pace and way the tapering programme will go. This could also prevent the US dollar from strengthening significantly.

Expected Ranges

  • GBP/EUR: 1.1710 - 1.1825 ▼
  • GBP/USD: 1.3580 - 1.3690 ▼
  • GBP/AUD: 1.8210 - 1.8430 ▲
  • EUR/USD: 1.1560 - 1.1630 ▼