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US Federal Reserve interest rate decision in the spotlight

Wednesday 2 November, 2022

Daily Currency Update

Today's interest rate decision from the FOMC will be in focus. The market expectation is still broadly for a fourth consecutive 75bp interest rate increase, which would bring the Fed’s overnight lending rate to a 3.75-4.00% target range. However, due to the risk of recession, the market will also look out for any indication of the size of future interest rate increases. The market is currently expecting US interest rates to potentially peak at 4.75-5.00% in 2023. The pound was higher against a weaker US dollar on Tuesday ahead of key meetings at the Bank of England and US Federal Reserve, with both central banks expected to deliver large interest rate increases. Since hitting a record low of $1.0327 in September, GBP has risen over 11% as the US dollar has softened on expectations that the US Federal Reserve could slow its pace of interest rate hikes. Meanwhile turbulence in British politics has subsided. The Bank of England is likely to raise interest rates by 75 basis points when it meets tomorrow, as it attempts to bring double-digit inflation back down towards its 2% target.

Key Movers

Despite another 75bp interest rate hike last week, European Central Bank President, Christine Lagarde, warned that rates may have further to go to avoid an increase in persistent, expected inflation. This stance was reiterated by two top officials – Bundesbank President Joachim Nagel, and Governor of the Bank of Spain Pablo Hernandez de Cos.

Expected Ranges

  • GBP/USD: 1.1485 - 1.1565 ▲
  • GBP/EUR: 1.1605 - 1.1665 ▲
  • EUR/USD: 0.9885 - 0.9955 ▲