Home Daily Commentaries All eyes on US interest rates today ahead of Bank of England tomorrow

All eyes on US interest rates today ahead of Bank of England tomorrow

Daily Currency Update

The pound remains range-bound ahead of a significant Bank of England meeting tomorrow just after midday. There has been speculation in recent weeks that the Bank of England may be tempted to raise its interest rates by as much as 100 basis points or 1%, in what would be an unprecedented move by a leading economy's central bank.

The impact for the pound of such a move could be quite significant, with a potential short term bolster for the UK currency. However, most market commentators are expecting a slightly more subdued move and priced in a 75 basis point decision, though in the grand scheme of things still a significant rise.

The dilemma for the UK economy remains its high inflation coupled with an energy crisis and cost of living crisis which is producing low growth metrics. With this, the pound remains on the back foot, as raising interest rates as fast as the market expects, may do little to bolster an economy already struggling to promote consumer demand. GBPUSD has dropped well below the 1.14 handle. The pound has now lost over 15% of its value  versus the US dollar this year alone.

Key Movers

All eyes are firmly fixed on the US Federal Reserve's interest rate decision tonight, with market expectations of a 75 basis point raise. The US sits in a slightly different position than the UK, with more robust economic data supporting the central bank's decision to raise rates aggressively, and this combination has left the US dollar one of the best performing currencies this year. It continues to drive the GBPUSD pair lower, breaking below the 1.14 handle overnight.

In other news, Putin's comments about defending territories and Russia have sparked fresh geopolitical concerns, which has raised the tone of global risk aversion and again provides support for a strengthening US dollar. EURUSD continues to trade around the parity mark but remains vulnerable to further downside pressure, with some anticipating the pair to end the year closer to the 0.95 handle.

Sweden’s central bank hiked its repo rate by 100bp to 1.75% today and signalled more tightening is on the way. This was the biggest hike ever by a bank since the initial introduction of inflation targets. The decision to hike by 1% was unanimous, prompted by the highest level of CPIF inflation for Sweden since 1991.

Expected Ranges

  • GBP/USD: 1.1285 - 1.1365 ▼
  • GBP/EUR: 1.1385 - 1.1465 ▼
  • GBP/AUD: 1.6910 - 1.7115 ▼
  • EUR/USD: 0.9875 - 0.9965 ▼