Risk appetite sees USD sold
Daily Currency UpdateUK Prime Minister, Liz Truss, announced plans yesterday to cap consumer energy bills at £2,500 for two years. The huge support scheme could cost Britain up to £150bn, but PM Truss refused to put a figure on it stating extraordinary times call for extraordinary measures. The move is expected to boost economic growth and curb inflation, which is currently at a 40-year high of 10.1%, largely due to the soaring energy prices.
The news, alongside Federal Reserve Chair Jerome Powell reiterating that interest rate hikes are set to continue, bolstered GBP/USD. The currency pair has just broken through this week’s high of 1.1600 and currently sits at around 1.1640. GBP/EUR also sits higher at around 1.1520 after touching 1.1480 overnight. Thursday’s high of 1.1540 followed the European Central Bank announcement to raise interest rates by a surprising 75 basis points (bp).
There isn’t a great deal of macroeconomic data to close the week. ECB president Lagarde is due to speak at the Eurogroup meetings in Prague at 10:30am. After yesterday’s interest rate announcement, comments will be deciphered for future moves by the European Central Bank. In the afternoon, Canada is due to announce its latest jobs figures with an increase expected in both employment change and its unemployment rate.
Key MoversRisk appetite seems to have returned to the market as major locations globally are seen to be acting on inflationary concerns. Yesterday the UK announced a cap on energy bills, while the Bank of England is expected to raise interest rates through to the end of the year. Europe hiked interest rates on Thursday by a historic amount (75 bp) as it attempts to tame rampant inflation, with Christine Lagarde stating that further rate increases would be needed to bring inflation down to the 2% target. The US also committed to future interest rate hikes via Federal Reserve Chair Jerome Powell and warned against prematurely loosening monetary policy. This has seen a sell off of the USD overnight, which is normally bought in times of global concern, and has seen both the GBP and EUR gain against it. GBP/USD is above 1.1600 and EUR/USD has broken 1.0100. If countries continue to fight inflation to combat recession worries, the US dollar could lose further ground.
- GBP/USD: 1.1540 - 1.1680 ▲
- GBP/EUR: 1.1490 - 1.1550 ▲
- GBP/AUD: 1.6860 - 1.7010 ▼
- EUR/USD: 1.0010 - 1.0190 ▲