Home Daily Commentaries Sterling volatility continues

Sterling volatility continues

Wednesday 7 September, 2022

Daily Currency Update

The US service sector expanded in August at the fastest pace in four months, data showed yesterday afternoon. A pickup in business activity and new orders were the reasons given for coming in above the growth number 50.0, achieving 56.9 against a forecast figure of 55.4. The reading indicates some strength in the US economy, giving the Federal Reserve more space to keep raising interest rates at a fast pace. Market participants are now factoring in a 70% chance that the Fed will hike rates by 75 basis points in September. The USD has strengthened overnight, pushing back both the EUR and GBP to recent lows. EUR/USD gains towards 1.00 were halted and a fall back below 0.9900 was seen. The currency pair now peers just over 0.9900. GBP/USD dropped to 1.1460 after touching 1.1600 earlier in Tuesday’s session. In the day ahead we anticipate the UK monetary policy report hearing. The hearing will see the Bank of England governor and several monetary policy committee members testify on inflation and the economic outlook, so comments will be deciphered for future interest rate decisions which in-turn could swing the pound.

Key Movers

The Bank of Canada is due to update their interest rate this afternoon with a 0.75% increase expected, this will be followed by the rate statement. Any changes to the forecast will likely sway the Canadian dollar, but no surprises are expected. Yesterday new UK Prime Minister, Liz Truss, promised a major package of support this week to tackle soaring UK energy bills. The announcement is expected to be on Thursday and is set to outline a government spend of around 200 billion pounds over the next 18 months to contain energy prices. PM Truss’s first day in office also saw her form a cabinet after meeting the Queen at Balmoral, replacing a number of members to form the most diverse cabinet in UK history. Sterling reacted on Liz Truss’s comments, taking GBP/USD up to 1.1600 and GBP/EUR to 1.1660 but both pairs have since fallen. All eyes and ears will now be on Thursday to see what the relief package looks like for any sustained Sterling gains.

Expected Ranges

  • GBP/USD: 1.1460 - 1.1580 ▼
  • GBP/EUR: 1.1590 - 1.1680 ▲
  • GBP/AUD: 1.7010 - 1.7220 ▲
  • EUR/USD: 0.9880 - 0.9960 ▼