Weekly Report – 3rd May to 6th May 2022

Friday 6th May -It was a relatively quiet day for the Pound as the Bank of England continued to give a bleak outlook on the economy after the interest rate decision placed pressure on the currency. However, the losses were limited as it seems as though the dramatic drop following the Bank of England meant that the Sterling had bottomed out.

 

The Euro edged higher as it was looking likely the European Central Bank would increase rates. It has been suggested that rates could begin increasing from July and so, as the Bank of England and the Federal Reserve have raised rates, it is believed the ECB will do the same.

There was no clear direction for the US Dollar following the release of mixed US jobs data. While more jobs were added, beating expectations, the unemployment rate stayed steady at 3.6% as opposed to meeting forecasts of a drop of 0.1%

Thursday 5th May

The Pound hit new lows as investors reacted to the news that the Bank of England would raise interest rates. Rates were increased by 25 bps although some officials did vote for a higher rise. Along with this, it has been reported that inflation will reach 10% by autumn and that the economy will shrink during Q4.

It was a mixed day for the Euro as it lost any gains that it had made against the US Dollar following news that German factory orders had shrunk by 4.7% during March. Despite this,  it did manage to strengthen against a number of rivals as the market mood continued to take a downbeat approach.

The US Dollar increased as the currency continued to improve following its post-federal reserve slump. Along with this, the risk-off market mood meant that investors increased their demand for the safe-haven currency.

Wednesday 4th May

It was a good start for the Pound as it strengthened as it took advantage of an improvement in UK government bond yields as it is expected that the Bank of England will increase interest rates again. Despite this, any gains were lost during the afternoon as it was announced that a ban on services exports to Russia would be put in place.

The Euro made a disappointing start to trading as it reacted to poor data. Trade surplus in Germany dropped while retail sales in the Eurozone also shrank by 0.4% in March. In addition to this, further sanctions on Russia also placed pressure on the single currency. However, the Euro managed to make up for these losses as it was supported by its negative correlation with the US Dollar.

Traders were unwilling to show an interest in the US Dollar as they waited for the decision on interest rates from the Federal Reserve. As the rates were raised by 50 bps, the Greenback slumped, dropping by almost 1%. This was down to the Fed taking a hawkish approach which did not match expectations.

Tuesday 3rd May

The Pound took a step forward during trading as the currency took advantage of improved market sentiment. Helping to bolster the currency was the latest manufacturing PMI with the figures during April being nudged higher.

There was an initial fall for the Euro at the start of trading after investors reacted to the latest job figures in the Eurozone. Despite this, the single currency made improvements during the afternoon after it took advantage of a negative correlation with the US Dollar which helped to boost demand.

After a drop in US Treasury yields and a risk-on mood, the US Dollar weakened. Despite US factory orders in March coming in better-than-expected, the Greenback still struggled to gain any momentum through the day

Currency Ranges for the week:

GBP/USD: Low: 1.22825 High: 1.26363

GBP/EUR: Low: 1.16453  High: 1.1943

EUR/USD: Low: 1.04884  High: 1.06307

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