Markets digest central banks’ decisions
Daily Currency Update
The upcoming week is expected to be relatively quiet, with a handful of economic events drawing attention.The Pound surged 1% versus the USD, putting it on course for its biggest weekly gain since mid-July. The Bank of England left borrowing costs unchanged at 5.25% last week and published forecasts showing the British economy was likely to skirt close to a recession in the coming years. The latest projections of the Monetary Policy Committee (MPC), which voted 6-3 to keep the Bank Rate on hold, indicate that monetary policy is likely to need to be restrictive for an extended period of time.
Key Movers
The US dollar traded in a fairly tight range against most of its peers last week.The moves were all modest, although it is remarkable that yet another week of rising long-term rates in the US failed again to boost the USD significantly. This suggests that the dollar already prices in a very positive scenario for the US economy and expects higher yields for much longer at current levels.
Other indicators such as weakness in U.S. jobs data, softer manufacturing numbers from around the world, and a decline in longer-dated Treasury yields also hurt the dollar.
Whilst the markets are expecting a 90% chance the Federal Reserve are done hiking, and an 86% chance the first policy easing would come as soon as June. Markets also imply around an 80% probability the European Central Bank will be cutting rates by April, while the Bank of England is expected to begin easing in August.
Expected Ranges
- GBP/USD: 1.23598 - 1.24059 ▲
- GBP/EUR: 1.15160 - 1.15401 ▲
- GBP/AUD: 1.89746 - 1.90378 ▲
- EUR/USD: 1.07186 - 1.07561 ▲