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Central bank meetings take center stage

Daily Currency Update

Today we have two central bank meetings that will absorb the markets attention and will more than likely provide some event risk for today. The Bank of England are likely to live up to expectation and hike rates at this meeting by 25bps, which will raise the rates to 0.5% overall and make this the first back to back rate hike since 2004. But as mentioned, this has been priced into the market for quite some time now so the act of rates being hiked may not have too much of an effect on the pound. That being said, if the BoE surprise us further with a 50bp hike, we could see the pound shoot up towards the 1.3650s and we may even see it test the 1.37 handle once more. What could also have an impact on the pound is the discussions from the BoE around further rate hikes in 2022 as well as the banks inflation report and forecasts.

Key Movers

The other central bank meeting to take place today comes from the European Central Bank. The market expectation is that the ECB will remain on the side of caution and not hike rates immediately. However, recent inflation data for the Eurozone has shown that inflation grew at a record high of 5.3% across January, having risen from 5.0% across December. The high inflation numbers will likely force the ECB’s hand into addressing this sooner rather than later, so market participants could expect the ECB to signal at a potential rate hike later in the year. If there is likely even a hint of tightening we could see EUR/USD push up towards the 1.14 handle but this could go the other way and fall dramatically if there is no mention of it. Vs the pound, if the BoE decide to hike as expected and the ECB fail to address high inflation we could see some big movements in the currency pair in favour of the pound.

The US dollar has had a tough week so far with the dollar index – a scale to measure the USD against a basket of other currencies and its major competitors – fell 1.3% from last weeks high with the currency losing almost all of last weeks gains. This may have occurred due to some weaker than expected jobs data so far this week, with further data from the jobs market in the form of Non-farm Payrolls due tomorrow. As a result, all of this data has slowed the fed tightening story slightly and has likely contributed to the US dollars downfall this week.

Expected Ranges

  • GBP/USD: 1.3530 - 1.3620 ▲
  • GBP/EUR: 1.1985 - 1.2095 ▲
  • GBP/AUD: 1.8995 - 1.9085 ▲
  • EUR/USD: 1.1230 - 1.1320 ▼