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Bank of England and European Central Bank kick off policy meetings

Thursday 16 December, 2021

Daily Currency Update

A surprisingly steep jump in inflation in the UK has put pressure on the Bank of England to become the first of the major central banks to hike interest rates post-pandemic. Wednesday’s data showed a rise in consumer price inflation to 5.1% in November – its highest level in 10 years. This caused markets to increase their expectations of a rate hike but the economic effects from Omicron may cause the central bank to deliver a cautious message. GBP/USD has started the day on a positive note and sits just below the 1.33 handle. The Bank of England meet today.

Key Movers

The US Federal Reserve yesterday stated that their inflation target had been achieved. As a result, they announced that they will end their pandemic-era bond purchases by March and allow for three rate hikes over the course of 2022, another 3 in 2023 and a further 2 in 2024. Interest rates will remain on hold for now and they have doubled the pace of their QE tapering to $30bn per month. The dollar showed an initial rally to the news but soon turned red and dropped vs some of its major rivals over the course of yesterday.   Today we see the start of the European Central Bank meeting where they will announce their decision on monetary policy. If they decide to remain cautious and focus on the economic risks that Omicron pose, then the euro could be at risk vs the US dollar. But if they take a more aggressive approach towards combating inflation then there is a chance that the euro could recover some losses. EUR/USD sits just above the 1.13 mark as we head towards the ECB meeting later today.

Expected Ranges

  • GBP/USD: 1.3255 - 1.3330 ▲
  • GBP/EUR: 1.1725 - 1.1795 ▲
  • GBP/AUD: 1.8515 - 1.8435 ▼
  • EUR/USD: 1.1330 - 1.1245 ▼