Currency Note

Markets await Federal Reserve meeting later

By Alex Bennett January 26th, 2022

All eyes are on the Federal Reserve’s interest rate decision today, which will be revealed later this evening. Officials are expected to pave the way for an interest rate hike in March, however the markets will be listening closely to any details surrounding the timing of hikes and the tapering of monetary policy for the rest of this year.

The pound is stronger against the euro this morning after falling earlier this week. Both a rebound of the FTSE 100 and expectations for the Bank of England to raise interest rates next week are supporting sterling.

The situation in Ukraine is weighing on the euro, which has weakened against the dollar. US troops have been put on alert to be deployed if tensions escalate.

Reports this morning reveal that Sue Gray’s inquiry into illegal gatherings at Downing Street could be published as early as today, after the Metropolitan Police made no objection to its publication.

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GBP: Pound stronger against euro

After struggling at the beginning of this week, the pound is stronger against the euro this morning. Despite a market dip, which caused the pound to suffer, it is now being supported by the outperformance of the FTSE 100 and expectations for a Bank of England rate hike next week.

The FTSE 100, a share index of the 100 companies listed on the London Stock Exchange with the largest market value, saw rises in companies such as InterContinental and Whitbread this morning.

Data revealed yesterday that manufacturing optimism has dropped in the first quarter of 2022, as the sector continues to face cost and price pressures, as well as supply issues.

GBP/USD past year

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EUR: Ukraine tensions weaken euro

The euro weakened to 1-month lows against the dollar yesterday due to concerns about the rising military tensions in Ukraine. US troops have now been put on alert to be deployed in the event of an escalation.

Data revealed yesterday that the IFO Business Climate indicator for Germany rose in January, recovering from a 10-month low in December. This signals that supply shortages in manufacturing and delivery delays in retail are easing. Sentiment improved across all sectors – manufacturing, services, trade and construction.

USD: Fed interest rate decision today

The dollar is strong this morning ahead of the Federal Reserve’s decision on interest rates.

The Federal Reserve is expected to pave the way for an interest rate hike in March and the markets will be listening closely for timings on raising the interest rate and tapering monetary policy. If they signal an earlier end to monetary policy and a faster pace of hikes, then the dollar could benefit.

The greenback is still being supported by the tensions in Ukraine, as it is a ‘safe-haven’ currency. As there are no signs of the situation de-escalating, it may stay supported by this.

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