Home Daily Commentaries Sterling lower as recession looms

Sterling lower as recession looms

Thursday 8 September, 2022

Daily Currency Update

Bank of England governor, Andrew Bailey, and the monetary policy committee gave a downbeat report at the monetary policy hearing yesterday. It was said that a weaker outlook for the UK economy as well as a stronger US dollar were putting pressure on Sterling. Governor Bailey also warned that there was little that could be done to steer the UK away from a recession at the end of this year while the Russia-Ukraine war continues, sighting the actions of Russia impacting energy prices.

The bank expects the recession to hit in the final quarter of 2022 and last through 2023. GBP/USD dropped to 35 year lows on the news, touching 1.1414. The currency pair has recovered since, trading above 1.1500 overnight. GBP/EUR has slipped over the past 24 hours and has tried to break below 1.1500 earlier this morning. Market participants now await news from the UK Prime Minister, Liz Truss, for further direction for the pound as she is set to deliver a plan to tackle rising energy costs.

Key Movers

The European Central Bank (ECB) will be the market’s main focus today, with the central bank widely expected to raise interest rates once more in an attempt to combat inflation. Although a hike of 50 basis points is the most likely move, matching July’s increase, with inflation at record levels and the cut in Russian gas supply pushing energy prices even higher, the case is strong for the ECB to be even more aggressive and deliver its biggest ever rate hike of 75 basis points. It’s a difficult balancing act for the ECB with economic activity slowing in the Eurozone, which is pointing towards a recession later in the year.

EUR/USD broke back through 1.00 a couple of times overnight but will likely wait on today’s announcement for guidance on movement today. GBP/EUR has slipped lower and could possibly move lower if the ECB raises interest rates by 75 basis points. GBP/EUR is currently at around 1.1510.

Expected Ranges

  • GBP/USD: 1.1410 - 1.1550 ▼
  • GBP/EUR: 1.1430 - 1.1600 ▼
  • GBP/AUD: 1.6970 - 1.7150 ▲
  • EUR/USD: 0.9880 - 1.0090 ▲