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Currency Market Update - 11th May 2023

Currency Market Update GBP continued its hot streak against both The EUR & The USD yesterday as both currency pairs hit one year highs, with GBP/EUR closing yesterday’s session just above 1.15, whilst GBP/USD had hit highs of 1.2680 earlier in the day due to their inflation figures for April coming in slightly lower than expected. Seemingly paving the way for The Federal Reserve to pause their rate hike cycle.

All eyes turn to The Bank of England this afternoon, with the central bank set to raise The UK’s interest rates for a 12th consecutive time, taking the base rate to 4.5%. Of more importance will be the guidance provided afterwards, with markets now 50-50 on whether The BoE will pave the way for further rate hikes dependant on data, or to stress a pause in hikes is needed to allow the existing and previous rate hikes to work through the system before deciding anymore. Recently, wages and inflation data have come in considerably high which usually would justify the need for further rate hikes. However, with market analysts expecting inflation to drop naturally in the coming months, as well as uncertainty surrounding the financial and banking sectors, there is currently around a 20% chance that The Bank of England raise by 25 basis points today, but stress no further rate hikes are imminent.

If as above, a hike is implemented but commentary suggests a pause in rate hikes, there is the potential that we see Sterling fall by around 0.6% against the major currency pairs.

We finish the week of tomorrow with the release of GDP Growth in The UK, with current expectations suggesting growth economically has slowed in the last quarter. This could be something the Bank of England take into consideration today when looking ahead for their next rate decision meeting in June. Either way, we expect volatility across GBP currency pairs throughout the morning up until that decision, due out at Midday today.



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