Weekly Market Report: 21st – 25th February 2022

Friday 25th February -It was a difficult end to the week for the Pound although it did manage to recover some losses against the US Dollar following a rapid selloff on Thursday. While the currency did make up some ground, the expectations that the Bank of England will tighten monetary policy only placed extra pressure on the Pound.

 

The Euro also managed to recoup some of its losses as it gained support from the decision to not place sanctions on oil and gas or restrict Russia from using the SWIFT financial payment system. Along with this, the Eurozone economic sentiment index increased to a new three month high, bolstering the single currency.

The US Dollar failed to keep hold of gains made earlier in the week after an improvement in market mood weakened the safe-haven currency. Furthermore, it was expected that the Fed is unlikely to bring in aggressive interest rates and that also weighed on the Greenback.

Thursday 24th February

There was a sharp drop in the Pound yesterday after a rapid market sell-off took place after Russia invaded Ukraine. It saw a drop of nearly 2%, hitting a two-month low against the US Dollar, the largest decline seen since the start of the pandemic back in 2020. The currency was also weakened as markets reduced their expectations for an aggressive rate hike by the Bank of England.

The Euro also took a fall as markets were threatened by a risk of issues around trade, inflationary pressure and economic activity. Oil prices increased and gas prices surged by 40% and this meant that the growth outlook for the Eurozone put pressure on the single currency.

In contrast, the US Dollar grew yesterday as it saw solid gains as investors took the decision to invest in the safe-haven currency. Investors also expect the Federal Reserve to tighten its monetary policy while investors repriced expectations, both of which helped to drive the USD.

Wednesday 23rd February

The Pound took a fall after it grew increasingly likely that Russia would invade Ukraine. This meant that many European currencies took a hit. The Bank of England policymakers also aimed to curb aggressive rate increase bets as it warned markets not to get ahead of themselves. This placed extra pressure on the currency.

The Euro lost ground against many of its rivals with German consumer confidence dropping to a ten-month low. The growing concerns of a Russian invasion also weighed heavily on the single currency while the negative correlation with the US Dollar also worked against the currency.

The US Dollar slipped during the start of trading after sanctions on Russia were not as strong as expected, which saw an increase in risk appetite. However, the Greenback then skyrocketed as it emerged that Russia had started to invade Ukraine.

Tuesday 22nd February

As fears grew around the Russia-Ukraine crisis, there were concerns that UK GDP growth would slow and inflation would rise, all of which caused the Pound to lose ground. The cost-of-living crisis also weighed heavily on the currency along with a dovish speech from the Bank of England.

After tumbling overnight, the Euro managed to make up ground and mount a recovery, even with the ongoing worries around Russia and Ukraine. The rise came as a result of the German business climate indicator which reached a five-month high and came in well above forecasts. Along with this, a weaker US Dollar also helped to bolster the single currency thanks to the negative correlation.

The US Dollar lost ground against many rivals as there was some volatile trading in reaction to Russia and Ukraine potentially going into conflict. Overnight, the Greenback had strengthened but risk appetite changed during the European session and that is likely to be down to the fact that Russia has not undertaken a full invasion.

Monday 21st February

The Pound made some initial gains after the UK’s services PMI far exceeded forecasts as it rose to 60.8 from 54.1. Despite this, as Russia looked likely to invade Ukraine, it meant that a potential war placed pressure on the currency and any gains were lost.

The Euro weakened as it reacted to the tensions between Russia and Ukraine rose and this meant that it dented the impact of strong services PMI. After a volatile day, experts believed that Russia was likely to invade and that meant that the single currency struggled.

The US Dollar made up ground against many of its rivals as it took advantage of a risk-off mood which boosted the safe-haven currency. However, as markets closed for President’s Day, it meant that trading conditions were lacking and this placed a cap on any gains.

Currency Ranges for the week:

GBP/USD: Low: 1.32802  High: 1.36201

GBP/EUR: Low: 1.18969  High: 1.20354

EUR/USD: Low: 1.11216  High: 1.13569

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