Home Daily Commentaries ECB raises interest rates for first time in 11 years

ECB raises interest rates for first time in 11 years

Daily Currency Update

This morning has seen UK Retail Sales fall 0.1% for June as the spending squeeze, driven by 40 year high inflation, hits retailers. The report from the Office of National Statistics showed that sales of petrol and diesel fell by 4.3% compared to May, highlighting that drivers were filling up less in the face of record high prices at the pump. The small drop for June was marginally better than expected, however illustrates an economy that is struggling with inflation that looks set to potentially top 10% before too long. Later this morning we get Services and Manufacturing PMI numbers for the UK which are expected to show modest growth. GBP/USD remains rangebound at around 1.1965 and GBP/EUR is at around 1.1745.

Key Movers

Yesterday's big news was the first interest rate rise from the European Central Bank since 2011. The ECB decided a 0.5% hike was warranted as the Eurozone, like the UK, deals with inflation that is way above its 2% target with the last reading of CPI showing an 8.6% rise in prices year on year. Markets were split over whether ECB chief, Christine Lagarde, would raise rates by 0.25% or 0.5% so the decision to opt for the latter saw EUR/USD jump nearly a cent hitting a high of around 1.0280. The rally was short lived however as Lagarde was non-committal about another move higher at its next meeting in September, instead saying that decisions would be made on a meeting by meeting basis. The abandonment of indicating future moves or "forward guidance" as it is known saw the euro give up all its gains.

The decision by Italian PM, Mario Draghi to resign is also creating a headwind for the shared currency as well as the uncertainty over whether Russia will continue to pump gas through its Nord Stream pipeline into Germany. On the data-front this morning has seen French and German PMI surveys fall short of expectations with the closely watched German Manufacturing number falling below 50 (which means the sector is contracting) for the first time since June 2020. As a result the euro is again on the backfoot with EUR/USD down to around 1.0130.

Expected Ranges

  • GBP/USD: 1.1890 - 1.2005 ▼
  • GBP/EUR: 1.1710 - 1.1820 ▲
  • GBP/AUD: 1.7200 - 1.7340 ▼
  • EUR/USD: 1.0080 - 1.0215 ▼