Currency Note

Pound stronger ahead of Fed interest rate decision

By Alex Bennett July 27th, 2022

The pound has strengthened sharply against the euro this morning, trading around a two-month high. Against the dollar, sterling is also stronger.

The euro has been suffering following fresh reports that Russia will restrict a key gas pipeline to the eurozone at a crucial period ahead of winter. Gazprom, the Russian energy giant, warned that it will cut flows through the Nord Stream 1 pipeline to just 20% capacity, blaming technical issues. The EU has condemned Russia’s “continuous use of energy supplies as a weapon”.

Today, the big event and market mover will be the US Federal Reserve’s latest interest rate decision. A hike of 75-basis points is widely expected, so any surprises could impact the major currencies.

There is more disruption to UK travel today with the latest round of national train strikes. Around 40,000 RMT union members will walk out over pay, jobs and terms.

In the political world, Tory finalist Rishi Sunak has vowed to scrap the 5% VAT rate on household energy bills if prices continue to rise. Sunak has so far not promised any tax cuts. Rival Liz Truss has called this a “screeching U-turn”.

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GBP: Pound up around 1% against the euro

The pound strengthened by around 1% against the euro yesterday after reports of more restrictions on Russian gas in the eurozone. Against the dollar, sterling remains stronger.

CBI distributive trades figures, which measure the wellbeing of the retail sector, rose by 1% in July, beating market expectations of a 4% fall.

It’s a quiet day for UK data today but with the US’s Federal Reserve’s next interest rate decision due later, market movement is highly likely.

From To


EUR: Euro falls as Russia threatens further gas restrictions

The euro plummeted against the pound and the dollar following reports of problems with another pipeline that provides Russian gas to the EU.

Gazprom, the Russian energy giant, warned that it will cut flows through the Nord Stream 1 pipeline to just 20% capacity due to technical issues. EU members have now agreed to voluntarily reduce 15% of their gas use between August and March to store gas ahead of winter and to protect themselves against Russia’s “continuous use of energy supplies as a weapon”.

German GfK Consumer Confidence fell to a new record low in August as mounting recession fears and gas worries push prices up higher.

USD: Federal Reserve interest rate decision due today

The dollar surged by almost 1% against the euro yesterday following growing tensions in between Russia and the eurozone.

Yesterday was the start of the two-day FOMC meeting in which the Federal Reserve will culminate today with its next interest rate decision. A hike of 75 basis points, bringing the US interest rate to 2.50%, is expected. Any surprises could rock the dollar.

In addition, US consumer confidence continues to plummet due to interest rate hikes and the rapidly increasing cost of living – this downward pattern in consumer confidence could continue with the release of the Federal Reserve’s interest rate decision.

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