Markets focus on today’s Federal Reserve and Bank of England announcements

GBP

Sterling held steady yesterday against the US dollar but was still trading near a two and a half year low ahead of the upcoming speeches from the Federal Reserve and the Bank of England. Speeches that could determine the outlook for the GBP/USD pair in the short term. At the Jackson Hole Symposium which started yesterday, BoE Governor Andrew Bailey joins Fed Chair Jerome Powell and other major bankers at the three-day event.

Sterling hit its lowest level since March 2020 on Tuesday after PMI data showed activity in the private sector stagnated in August. It is expected that the BoE Governor will reiterate his commitment to hiking interest rates to try curbing rampant inflation, which some analysts’ forecast shows an increase up to 18% by January next year. Despite the BoE’s efforts, the UK is likely heading into a recession at the end of the year and will remain in recession until at least 2024.

The market is pricing in a 50 basis points hike for the BoE’s next meeting in September, which will see interest rates at 2.25%.

Against the euro, the pound has treaded water and was little changed on Thursday. EUR and GBP have shed around 12% against USD as both currencies share the same issues of record inflation due to surging energy costs and slowing growth.

This morning energy regulator Ofgem raised the UK energy price cap set to start in October to £3,549. In a blow for hard-pressed consumers already struggling with soaring prices, Ofgem approved the £1,578 increase on the current price cap of £1,971 for the average dual-fuel tariff – a rise of 80%.

USD

The dollar held onto gains against the euro and pound yesterday as the market now focuses on the upcoming speech from Jerome Powell. He is set to give his speech today at 2pm UK time at the Jackson Hole Symposium with markets watching closely for any clues as to how aggressive the next interest rate rise will be. Currently markets are pricing in that rate hikes will continue to peak this year with a possibility of rate cuts starting in 2023.

Key announcements

13:30 – USD – US Core PCE Index

15:00 – USD – US Federal Reserve Chair speaks

15:00 – USD – Jackson Hole Symposium