GBP/USD
Yesterday was a big day for the Buck as the much awaited decision by their central bank, the Federal Reserve, was available for all to see. The path the Fed chose to take was a 0.5% hike in interest rates, the largest hike ever for the last two decades. The immediate knee-jerk reaction by the rate was a slight climb but as markets digested the news, the rate began to slow down and slip. Exacerbating the Dollar’s losses was the news that the Fed ruled out any chances of additional rate hikes being more than 0.5%, with Fed Chair Jerome Powell saying, ‘a 75 basis point is not something that the committee is actively considering.’ This evidently disappointed investors and the Dollar quickly paid the price, with it falling quite significantly allowing the Pound to advance against it. Another reason why the Greenback failed to gain much momentum following the rate hike was the simple fact that it had already been intensely priced into the market and did not surprise investors all too much. However, with this now being largely behind us, the attention is back onto the Bank of England. At midday they are expected to announce a rate hike to 1% in a bid to curb record high inflationary levels. This does come with a degree of uncertainty though, as the ongoing cost of living crisis may cause the BoE to push of any rate hikes. On the Brightside, any rate hike announcements will likely be met with strong upwards momentum for the Pound as this has not been so heavily priced into the market.
GBP/EUR
So far today, the rate has been facing some strong headwinds and has fallen quite sharply at the time of writing. This is likely a sign that investors are awaiting the crucial BoE interest rate announcement. The Bank of England are predicted to hike interest rates by 0.25%, bringing the overall rate to 1%. If this comes into fruition, it will be the highest interest rate level since March 2009 and the banks 4th consecutive hike as they try to combat inflation. This would put the BoE and the European Central Bank at opposite ends of the table, with the ECB sticking to their dovish tone and keeping their interest rate levels at historic lows. This could give the Pound a competitive advantage against the Euro, with gains having the potential to be very sizeable. Additionally, the Euro may struggle in the near future with the EU proposing a sixth round of sanctions against Russia, this time looking to phase out Russian oil imports. The implementation of this new ban may cause some difficulties of European economies and therefore weigh on the Euro.
Published by Frank Brightman (05/05/2022)