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Major economic events close out the year

Friday 17 December, 2021

Daily Currency Update

Yesterday, the Bank of England shocked markets by announcing a 15bp interest rate hike from 0.1% to 0.25%. This is the first time in over three years that this has happened as they attempt to tackle surging prices across the UK. The rate hike surprised a few given the ongoing Omicron situation across the UK which could potentially cause a slowdown in the economy due to people spending less. But clearly Wednesday’s CPI print of 5.1% - the highest level we have seen in 10 years – was enough for the Bank of England members to vote in favour to combat these inflationary pressures. We saw the pound receive some initial support with GBP/USD topping out at 1.3375 yesterday, but it has fallen slightly since then and sits at around 1.3330 this morning.

Key Movers

The European Central Bank meeting went largely as expected. They announced that the Pandemic Emergency Purchase Programme would end in March while also raising their inflation forecasts for 2022 slightly higher. ECB President Christine Lagarde also announced that a 2022 rate hike is highly unlikely but didn’t go as far as saying that this was definite. The message from the ECB was on the whole more positive than markets were anticipating and as a result GBP/EUR pulled back slightly from its highs in the 1.18s earlier in the day, down to the mid 1.17s. Since Wednesday the dollar has lost ground against all of the G10 currencies (the 10 highest traded currencies globally). The US dollar index – which measures the value of the US dollar vs a basket of other currencies – closed in the red on Thursday, with both the pound and euro gaining some momentum off the back of the BoE and ECB meetings respectively. EUR/USD hit two week highs topping out just above 1.1360 however it fell back slightly and currently sits around the 1.1330 handle.

Expected Ranges

  • GBP/USD: 1.3270 - 1.3365 ▲
  • GBP/EUR: 1.1715 - 1.1795 ▼
  • GBP/AUD: 1.8535 - 1.8630 ▲
  • EUR/USD: 1.1305 - 1.1365 ▲