Interest rate hike expected this week

GBP

The Bank of England (BoE) is expected to deliver its third rate hike this week. However while last month showed a surprise 5-4 vote split for a possible 50 basis points increase, the BoE will likely continue with another 25 basis points increase. Therefore it is probable Sterling will hold onto its gains made against the euro.

USD

Although the BoE are set to raise interest rates this week, markets’ focus will be firmly on the US Federal Reserve interest rate decision. The Fed are expected to increase by a minimum 25 basis points to combat the rising inflation in the US, and this seems this is almost fully priced in by currency markets.

The dollar will continue to experience safe-haven flows and interest rate increases will help maintain gains made over the last three weeks.

EUR

Both the pound and the euro have been among the underperformers since the beginning of tensions between Russia and the Ukraine. At the same time, with stagflation concerns picking up, both currencies are likely to remain under pressure.

Peace talks between Russia and Ukraine delegates have sounded positive, ahead of more negotiations in the next few days. Ukrainian negotiator and presidential advisor Mykhailo Podolyak said talks had become more constructive. Russian delegate Leonid Slutsky, said there had been significant progress and they hoped to soon arrive at a “joint position with a document being signed”.