Markets anxiously await the Federal Reserve’s interest rate decision
Daily Currency Update
In Europe today, ECB President Christine Lagarde emphasized that interest rates are not following a linear and fixed downward trajectory. She suggested that sustained periods of higher rates may occur, as future cuts will be data-dependent. The ECB council is closely monitoring wage growth, which remains persistently high.Turning to the UK, recent data revealed a loss of 140,000 jobs in the last three months. This development has temporarily capped gains for the Pound. Despite the weak labour market, the UK wage growth remains resilient.
Meanwhile, the US Dollar has traded within a narrow range as markets await Consumer Price Inflation data and the Federal Reserve’s interest rate policy decision. Strong employment figures from last week indicate a robust US labour market, potentially supporting higher rates in the US.
Key Movers
The Euro is expected to remain firm throughout June, following statements from the ECB council indicating that interest rates may not decline in a straight line for the rest of 2024. Three council members—Kazimir, Nagel, and President Christine Lagarde—have all urged caution as markets anticipate further rate cuts by the European Central Bank. This prudent stance suggests a more measured approach to rate reductions, which should support the Euro's strength against other major currencies.Persistently high wage growth in the UK could disrupt the Bank of England’s anticipated interest rate cuts this year. Average earnings in the UK have grown by 5.9%, revised upward from an initial target of 5.7%. This wage inflation complicates the BoE's plans, making it likely that the Pound will trade sideways as markets grapple with the timing of the first interest rate cut. The ongoing uncertainty about rate cuts will contribute to the Pound's stability without significant directional movement.
All eyes are on the Federal Reserve’s interest rate decision tomorrow. While markets expect no change in rates, Fed policymakers have made it clear that they will not reduce borrowing costs unless inflation falls and remains at their target rate of 2%. If the Fed leaves rates unchanged, as markets expect, it will mark the seventh consecutive pause, providing strong support for the US Dollar. The Fed's commitment to controlling inflation without immediate rate cuts will reinforce the Dollar's value in the near term.
Expected Ranges
- GBP/USD: 1.2685 - 1.2755 ▼
- GBP/EUR: 1.1815 - 1.1870 ▼
- GBP/AUD: 1.9260 - 1.9325 ▼
- EUR/USD: 1.0715 - 1.0770 ▼