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US Federal Reserve hikes rates

Daily Currency Update

Today sees the much awaited Bank of England interest rate decision with markets expecting Governor Andrew Bailey to hike rates by 0.25%, mirroring the move by the US Federal Reserve yesterday evening.

With UK inflation currently way above target at 5.5% y/y the Bank is under pressure to bring price rises under control. At its last policy meeting Bailey indicated that he expected inflation to peak above 7% in coming months and that action was needed by the Bank sooner rather than later to bring it under control. Since the last meeting however we have seen Russia's invasion of Ukraine which has caused a crisis and economic uncertainty. How much this uncertainty will impact the Bank’s future decision making should be unveiled at midday when the Monetary Policy Summary is published.

GBP/USD has pushed higher over the past 24 hours in part due to the US Federal Reserve’s decision to raise rates by 0.25% and not 0.5% which had been an outside chance. GBP/EUR is up to around 1.1930.

Key Movers

Yesterday evening saw the much awaited interest rate decision from the Federal Reserve with Governor Jay Powell announcing a 0.25% rise in line with most analysts’ expectations. Powell telegraphed that the Fed would raise rates at each of its remaining six meetings this year in an effort to bring inflation under control, that is running at a 40-year high. The fact that the Bank didn't hike by 0.5%, and that he retained confidence that the US economy would continue to grow at a steady rate despite the repercussions of the war, is likely why the US dollar has weakened since the decision. Investors tend to move towards the US dollar during uncertainty, but these comments have brought some stability.

Later today Philly Fed Manufacturing Index data and Unemployment numbers from the States are due. EUR/USD trades at around 1.1050, its highest level in a week.



Expected Ranges

  • GBP/USD: 1.3070 - 1.3300 ▲
  • GBP/EUR: 1.1840 - 1.2020 ▲
  • GBP/AUD: 1.7780 - 1.8100 ▼
  • EUR/USD: 1.0970 - 1.1120 ▲