Home Daily Commentaries All eyes on US Fed interest rate announcement

All eyes on US Fed interest rate announcement

Daily Currency Update

Sterling has ticked higher in the past 24 hours against both the US dollar and euro. US and European data has not helped the local currencies. The German IFO Business Climate survey showed its worst reading since June 2020, and Services PMI in the US posted a poor reading below expansion. Both countries have also had their consumer confidence figures come in below forecasts with releases yesterday and early this morning.

Sterling was likely bolstered further by the return of greater political certainty, albeit that the two candidates, Rishi Sunak, and Liz Truss, now need to be dwindled down to one. GBP/USD fell early yesterday to a session low of 1.1970 but has since picked up, back above 1.2050. Movement is still within recent ranges. GBP/EUR has continued to climb and falls just short of breaking 1.1900 this morning.

Key Movers

The US central bank is expected to raise interest rates by 75 basis points (bp) this evening as it continues to combat inflation running at 40-year highs. Market participants will have their eyes firmly on the announcement, being the key data release for the US dollar this week, but also due to the growing expectation that we may see various outcomes. A 75 basis point interest rate hike has already been factored into US dollar movement, but some predictions have pointed toward a surprise 100 bp hike.

Predictions are also taking into consideration the recent US slowdown, which may see the announcement fall short of the expected with a 50 bp hike. In regard to currency volatility on the announcement, the US dollar could strengthen if the hike is greater than 75 bp, and potentially fall if less. Depending on the outcome, EUR/USD could be back below parity or could break back above 1.0200. GBP/USD could also see some movement.

Expected Ranges

  • GBP/USD: 1.1920 - 1.2160 ▲
  • GBP/EUR: 1.1780 - 1.1990 ▲
  • GBP/AUD: 1.7280 - 1.7450 ▲
  • EUR/USD: 1.0000 - 1.0210 ▲