Rate hikes on the horizon


Looking back, the rate tumbled to fresh new lows yesterday following the publication of the latest UK GDP data. The data showed that the UK’s GDP has contracted for the second time, with figures falling short of the market consensus. It is believed that this slump in GDP growth was predominantly down to the winding down of the UK government’s track and trace program, leading to a sharp decline in health spending. The impact of these disappointing statistics was felt throughout the day, with the pair quickly falling to its lowest level seen since May 2020. So far today, the Pound has shown its resilience with it trying to retrieve some of its losses but has once again been weighed on by disappointing data. This comes following the new UK employment data released earlier this morning. It was revealed that the unemployment rate has increased to 3.8%, much higher than the forecast of 3.6%. This has piled up the pressure for the Pound, with recessionary fears for the UK now at blisteringly high levels. The Dollar, on the other hand, is still performing very well in the market. As it currently stands, many investors are eagerly waiting for the Federal Reserve’s interest rate decision due tomorrow. It is expected that the Fed will hike interest rates by 0.5%, but new calls for a 0.75% hike following their recent inflation data are growing louder.


So far into trading today the Pound-Euro rate is struggling to stay afloat, with the pair on track to reach its lowest levels since September 2021. This comes as confidence in the Pound has taken a significant blow following April’s disappointing GDP figures, with the data coming in below forecast. These poor growth statistics have reaffirmed bets that the Bank of England will take a more cautious approach in their interest rate decision on Thursday, further weighing on the Pound. As it currently stands, investors are forecasting that the Bank of England will raise interest rates from 1% to 1.25% on Thursday. If this is followed through, markets may be somewhat disappointed, and we could see some additional Pound-side weakness. As for the Euro, the currency is also finding itself struggling slightly as the post European Central Bank sell-off continues. Their bank announced that will be raising interest rates for the first time since 2011, but only by 0.25%. This did underwhelm investors as they had been hoping for a more hawkish approach by the central bank. However, the Euro is finding support in the markets current risk appetite, helping limit the currencies losses.

Morning Update published by Frank Brightman (14/06/2022)

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