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Euro soars as ECB considers 50bps rate hike

currency-newsEuro soars as ECB considers 50bps rate hike
The euro rallied on Tuesday, the single currency drawing support from reports that the European Central Bank (ECB) is considering a 50bps interest rate hike this week.

Meanwhile, the pound is stuck in a narrow range this morning, with GBP/EUR muted at €1.1718 and GBP/USD flat at $1.2015. GBP/CAD is stable at C$1.5463, while GBP/AUD and GBP/NZD slip to AU$1.7377 and NZ$1.9217, respectively.

Looking ahead, can we expect another volatile day of trade for Sterling following the UK’s latest inflation figures?

What’s been happening?

The euro strengthened against the majority of its peers yesterday, firming on the back of a report from Reuters that the European Central Bank is discussing whether to raise interest rates by 50bps on Thursday.

The same report also suggested the bank is also close to finalising an anti-fragmentation tool, something which pushed European bond yields higher and underpinned EUR exchange rates.

Meanwhile, the pound wavered on Tuesday on the back of a mixed jobs report. While unemployment held at 3.8%, beating forecasts it would rise to 3.9%, wage growth continued to disappoint, as the gap between inflation and real pay grew to a record high.

On the other hand, Sterling was supported by comments from Bank of England (BoE) Governor Andrew Bailey as he suggested a 50bps rate hike might be on the table in August.

Across the pond the USD selloff remained firmly entrenched as a risk-on mood and easing Federal Reserve rate hike expectations continued to drag on the currency.

What’s coming up?

Looking ahead, the only data release of note today is the UK’s consumer price index.

Released earlier this morning, the latest CPI figures reported domestic inflation climbed to a new 40-year high of 9.4% in June.

The latest acceleration of inflation may help to reinforce BoE rate hike bets and bolster the pound this morning. Although Sterling’s upside potential may be limited as the inflation figures are also likely to exacerbate cost of living concerns.

For EUR investors the focus will remain on the ECB’s impending interest rate decision. Potentially leading to further gains underpinned by hopes for a 50bps hike.

Meanwhile, in the absence of any notable US data to provide direction, the recent correction in the US dollar may persist, especially if the market mood remains broadly upbeat.  
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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