Weekly Market Report: 17th – 21st January 2022

Monday 17th January – The Pound lost some ground even though the latest Covid data suggested that cases are falling and that hospitalisations are plateauing, giving hope that restrictions can be eased further in the coming weeks. However, there was a lack of economic data that worked against the Pound. The ongoing investigation surrounding the Downing Street parties is still leaving investors feeling cautious and that is having a knock-on effect on the Pound.

 

The Euro also weakened against a number of its peers as it also reacted to a lack of data. Along with this, the strengthening US Dollar also added further pressure to the single currency as a result of a negative correlation between the two.

The US Dollar took a strong stance during trading today, even though the markets were closed for Martin Luther King Jr Day. However, the Greenback was given a lift by the hawkish expectations from the Federal Reserve. But, a risk-on market mood, as well as reduced trading conditions, meant that any gains were capped

Tuesday 18th January

The Pound suffered at the hands of a drop in real wages which meant that it couldn’t keep up with many of its peers. Despite the upbeat jobs report which should have given the currency a boost, the currency suffered as a result of rising inflation and a possible cost of living crisis that the UK is likely to experience.

The euro also fell behind as investors did not seem impressed with the latest German ZEW economic sentiment index which came in above expectations. This is mainly down to the conditions indicator which saw it drop to the lowest level since May 2021 and this placed pressure on the single currency. Furthermore, the strengthening US Dollar and policy news from the Central Bank all helped to push the currency in the wrong direction.

It was a better day for the US Dollar as it managed to make gains after Treasury Yields managed to remain near a two-year high. The risk-off mood also meant that demand for the safe-haven currency was also boosted, as the likelihood of rate hikes remained prominent.

Wednesday 19th January

The Pound managed to firm against many of its rivals as it reacted to UK inflation which increased to levels that were unexpected. This left investors wondering whether there will be another rate hike at the next Bank of England policy meeting. Along with this, there was positive news in relation to covid restrictions as Boris Johnson announced that Plan B restrictions would end on the 27th of January.

It was a quiet day for the Euro as the single currency was influenced by increasing tensions between the EU and Russia as well as rising covid infections. However, a weakened US Dollar helped to support the Euro even though there was a negative correlation between the two.

The US Dollar nudged lower after there was a small increase in risk appetite across the European markets that placed pressure on the Greenback. There was also a lack of data that meant that the US Dollar wasn’t pushed in any direction and that left the safe-haven currency open to losses.

Thursday 20th January

It was a mixed day for the Pound as it managed to outperform the safe-haven currencies only to lose ground against its more riskier rivals. The pound was supported by a potential Bank of England rate increase although the ongoing political problems in the UK put a cap on any gains.

The Euro lost some ground during trading as a result of a risk-on mood which put pressure on the single currency. There was also additional pressure from Central Bank policy divergence with the latest meeting confirming that the bank has no intention to raise rates in 2022.

The US Dollar also lost ground against many of its peers after an aggressive tone resulted in investors shifting their focus onto higher-yielding currencies. There was also an unexpected increase in jobless claims and that weighed heavily on the Greenback, especially at a time when Omicron is continuing to cause problems for the economy.

Friday 21st January

There was significant selling pressure on the Pound following a significant drop in UK retail sales during December. Data showed that sales dropped by 3.7% which is more than the expected 0.6% proving just how much of an impact Omicron has had on sales as well as the way that inflation dented spending.

The Euro pushed higher, gaining ground on many of its rivals while it also benefited from a change in market mood, which meant that it could take advantage of the drop in GBP/EU. Along with this, consumer confidence in the Eurozone dropped more than expected in January.

It was a quiet day for the US Dollar and it showed no sign of moving in either direction so trading sideways. Even the support of a risk-off market mood could not help the Greenback to trend upwards. A lack of data meant that investors took a subdued approach especially with the impending speech from the US Secretary of the Treasury Janey Yellen.

Currency Ranges for the week:

GBP/USD: Low: 1.35516  High: 1.3662

GBP/EUR: Low: 1.1939  High: 1.2039

EUR/USD: Low: 1.13026  High: 1.1421

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