The beginning of this week in the UK was very sombre with Her Majesty’s funeral and a UK Bank Holiday. This meant UK markets were shut, and ensured a fairly sleepy start to the week from a currency perspective, with sterling still nestling in the doldrums following the poor Retail Sales data from last week.
The rest of this week looks far from calm however, with three key events that could trigger market movements for the pound, US dollar, Euro and many other currencies. The arguably biggest and more global news is the release of the latest US Federal Reserve Interest Rate decision this evening. The ‘Fed’ is predicted to raise interest rates by 75 basis points, with some market participants suggesting we need or could see as much as 100 basis points, a record hike.
Inflation has continued to rise in the United States, and whilst not quite as high as in the UK, the Fed are appearing to become more aggressive in their approach to temper the rising prices. The US dollar has continued to surge pushing the pound down to a 37-year low against the US dollar last week, and rising against the Euro to over a 20-year high, breaking the parity mark once again.
Tonight’s decision will be very closely watched by global markets, as the US dollar is the world’s leading currency and interest rate policy in the US can shape global attitudes on finance. What we are also seeing is the US dollar become stronger because it is a safe haven currency, and there has been growing speculation other parts of the world are headed for recession. The strength of the greenback has therefore been twofold, it’s economic plans with higher interest rates, and the fact that it is seen as a safe investment aware from the economic uncertainty elsewhere, like the UK and Eurozone for example.
Bringing the focus back across the pond, the Bank of England then meet tomorrow for their latest interest rate decision which is widely expected to see further rate hikes too. As with the US decision, there is speculation over just how aggressive any hike will be, and this is where we could easily see some market movements, as investors try to second guess the outcome and effectively place bets on what might happen.
For GBPUSD levels, we, therefore, have an extremely important 36 hours from this morning until tomorrow lunchtime, when we could see all manner of movement on the pairing. And this will often feed into GBPEUR levels too, since the Euro is the most heavily traded currency after the US dollar, and any big shifts on the US dollar usually influence EURUSD rates, which will then in turn influence GBPEUR levels.
And then to end the week on Friday, we have the UK mini-budget by Kwasi Kwarteng, the new UK Chancellor, where he is expected to announce a series of measures aimed to help economic growth. Liz Truss is capturing media attention over her plans to cut taxes and there is lots of evidence to suggest this course might actually be detrimental to the economy, she insists this is not the case so there is absolutely scope for the market to get involved in this debate, and show their feeling by buying or selling the pound.
The pound is trading near historic lows against many currencies presenting excellent opportunities for individuals and businesses with foreign currency, looking to buy the pound. The flip side is some very difficult decisions for those holding the pound needing to buy, with a number of factors on the horizon that indicate the pound may not be coming out of the woods anytime soon.
For an intelligent discussion of the market, and all of your options to help maximise any currency positions, please feel free to contact me directly to discuss on [email protected].