Weekly Market Report: 4th – 7th January 2022

Tuesday 4th January – The Pound made up some good ground on Tuesday as there were increased bets on a likely Bank of England rate hike next month. Furthermore, the news that Omicron is still proving to be less severe means that no further restrictions will be necessary at the moment. To add to this, the currency also received a boost from news that the final manufacturing PMI came in higher than expected.

 

It was a different day for the Euro as it lost ground even with German retail sales increasing and unemployment dropping further than expected. The single currency faced headwinds due to the policy differences between the European Central Bank, Bank of England and the Federal Reserve.

There was some selling pressure for the US Dollar as an improvement in market sentiment meant that investors chose to look beyond the safe-haven currency. Along with this, the US ISM manufacturing PMI and JOLTs job opening reports came in below expectations and this again placed pressure on the Greenback and its overall appeal.

Wednesday 5th January

It was a different day for the Pound as it lost its way against a number of rivals. This came after the new Omicron variant continued to place pressure on the NHS as a result of growing staff absences. Despite the bad news, the losses were capped after it was announced that Boris Johnson has no plans to implement further covid restrictions. This meant that the currency was able to make some small gains against many of the weaker peers.

The Euro experienced a mixed day of trading after it slipped against a number of stronger rivals after a poor composite PMI was released. The Eurozone experienced a drop in economic activity, taking it to the lowest levels seen for nine months. Growing Covid cases also weighed heavily on the single currency as further restrictions dented activity. Despite this, losses were limited due to its negative correlation with the US Dollar.

A bullish market sentiment caused the US Dollar to stumble yesterday and this meant that there was a drop in demand for the safe-haven currency. The impressive ADP employment change report was ignored by markets as it showed that economists had doubled their expectations as investors waited for the latest meeting minutes from the Federal Open Market Committee. The minutes indicated that the Federal Reserve might raise rates earlier or at a faster rate than originally anticipated and this caused the USD to recover some losses.

Thursday 6th January

The pound started the day on the back foot although it did manage to make up ground later on in the day, despite the pressure being placed on the NHS as a result of Covid-19. The finalised services PMI showed a slowdown during December but investors managed to overlook that although any pressure on the currency might have been dampened by Bank of England rate hike bets.

The Euro was range bound on Thursday and even strong German data couldn’t send it in an upward direction. The German economy saw factory orders increase by 3.7% in November, beating forecasts. Along with this, the inflation rate in Germany also increased by 0.1% to 5.3%.

It was a turbulent day for the US Dollar after it lost gains after poor economic data caused concern for investors. Jobless claims pushed upwards slightly, while US ISM services PMI dropped to 62 from 69.1, coming in well below expectations. In the same way as the UK, rising Omicron cases also caused problems for growth in the US service sector.

Friday 7th January

It was a relatively quiet day for the Pound as Covid continued to cause staff shortages, causing disruption across the UK. The military were called in to help the NHS while many health trusts declared major incidents. All of this meant that the Pound struggled to find any momentum.

It was a different story for the Euro as it managed to make up ground against many of its pers, strengthening as the day went on. This was down to inflation and retail sales, both of which came in higher than expected. The US Dollar also dipped in the afternoon and this helped to bolster the single currency.

The US Dollar experienced a sharp drop after non-farm payrolls data was not as expected. It indicated that the US economy only added half of the 400,000 jobs that were predicted. Despite this, the US unemployment rate dropped more than expected to 3.9% from 4.2%, however, this was not enough to prevent any losses.

Currency Ranges for the week:

GBP/USD: Low: 1.3498  High: 1.35967

GBP/EUR: Low: 1.19153  High: 1.19974

EUR/USD: Low: 1.12748  High: 1.13627

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