Monthly Currency Report – January 2023

Tuesday 31st January – The Pound struggled after the International Monetary Fund (IMF) predicted a recession in the UK this year and downgraded its economic forecasts. This was compounded by rising company insolvencies in the UK and an analysis suggesting that Brexit has cost the British economy £100bn per year.


The Euro lacked direction yesterday. Although the Eurozone economy surprisingly expanded in the fourth quarter of 2022, the drop in German retail sales and the Russia-Ukraine crisis put some pressure on EUR. It lost ground against riskier currencies during an improving market mood in the later session.

The US Dollar rose at the start of the European session as traders sought safety in the currency during a downbeat market mood. However, the improvement in risk appetite during US market hours weighed on USD and it couldn’t maintain its gains.

Monday 30th January

The Pound was stable on Monday, fluctuating against other currencies due to the absence of UK economic data and a cautious market atmosphere. Despite this, expectations of a 50 basis point interest rate increase from the Bank of England later in the week limited the decline of the Sterling.

The Euro saw an increase at the beginning of the week’s trading session, driven by a better-than-anticipated Eurozone economic sentiment index and anticipation of a hawkish decision from the European Central Bank. Later in the day, the Euro saw a drop in value due to concerns about the Russia-Ukraine situation and the potential for a winter recession in Germany.

Meanwhile, the US Dollar had a strong day, boosted by a negative market mood and a rise in US Treasury yields.

Friday 27th January

Sterling remained subdued on Friday as Chancellor Jeremy Hunt’s speech failed to boost investor confidence. Despite outlining plans for growth and investment, he stated tax cuts would have to wait until inflation was controlled, causing disappointment.

The Euro ended last week’s trade negatively due to ongoing concerns about the Russia-Ukraine conflict. Russia’s recent missile and artillery attacks in Ukraine and explosions near a nuclear power station added to worries of escalation.

The US Dollar saw mixed trade on Friday due to market reactions to the US core PCE price index and other data releases. The price index slightly increased in December, suggesting a potential slowdown in inflation, but a larger-than-expected drop in personal spending could indicate an impending economic downturn, reducing chances of a Fed interest rate hike.

Thursday 26th January

The Pound remained subdued yesterday due to a larger-than-anticipated drop in the CBI’s distributive trades survey, raising concerns about the UK retail sector. Nevertheless, expectations for interest rate hikes by the Bank of England next week may have prevented a further decline in Sterling.

The Euro faced multiple challenges yesterday, including growing worries over escalating tensions in the Russia-Ukraine conflict, with Russia viewing the West’s tank donation as “direct involvement.”

The US Dollar initially strengthened after US GDP and durable goods orders surpassed expectations, but these positive releases also boosted market sentiment, reversing the USD’s gains as a safe-haven currency.

Wednesday 25th January

Sterling experienced a tumultuous start but eventually made a comeback yesterday, earning modest gains against multiple currencies. This was due to ongoing bets on a 50bps interest rate hike by the Bank of England next week. However, UK economic uncertainties limited the GBP’s growth.

The Euro faced setbacks yesterday as anxieties grew over a potential escalation in the Russia-Ukraine conflict, causing unease among EUR investors. Germany’s decision to supply battle tanks to Ukraine further escalated the situation, with the Russian embassy in Germany alleging it raised the war to a new level.

The US Dollar moved indecisively yesterday due to light trading ahead of crucial US data releases today and tomorrow, mixed movements in the US bond market, and a lacklustre market sentiment.

Tuesday 24th January

The Pound experienced a significant drop yesterday after the latest UK services PMI showed a steeper contraction than expected, raising concerns about a potential recession.

The Euro saw limited movement yesterday, despite positive PMI reports surpassing forecasts, including a return to growth for the service sector after six months. The single currency struggled to gain traction.

The US Dollar had a mixed performance yesterday, initially gaining as a safe-haven currency in a cautious market, but trimmed its gains later in the session due to upbeat US PMI reports boosting market sentiment and declining US Treasury yields weighing on the USD.

Monday 23rd January

The Pound was hit yesterday by a warning from the EY Item Club that the UK’s expected recession this year could be worse than previously thought. This was compounded by the National Grid activating contingency plans during a cold snap.

The Euro dropped, losing overnight gains as risk-on sentiment weighed on the safe-haven currency. The weaker-than-expected improvement in Eurozone consumer confidence also impacted EUR.

The US Dollar experienced some volatility yesterday, as an optimistic market outlook weighed on the safe-haven currency while rising US Treasury yields supported it. USD saw a slight decline against stronger peers and modest gains against weaker ones.

Friday 20th January

Last Friday, the Pound experienced a decline in value after the release of December’s retail sales data, which came in much lower than anticipated. Initially predicted to be at 0.5%, the actual sales data revealed a drop of 1%. Experts pointed out that factors such as inflationary pressures and increasing interest rates had a negative impact on consumer spending.

The Euro started off Friday in a strong position, but as the day progressed, there was a change in market sentiment which caused the currency to lose value. Some believe that concerns about the possible escalation of the Ukraine-Russian conflict, as a decision on supplying tanks to Ukraine approaches, may have contributed to the pressure on the Euro.

Last week, the value of the US Dollar fluctuated greatly due to conflicting market forces. On one hand, an improvement in the yields of US Treasury bonds had an upward effect on the dollar, but on the other hand, a shift towards risk-taking in trading had a downward effect. Additionally, speculation about the potential timing and size of interest rate hikes by the Federal Reserve caused further volatility and uncertainty among investors.

Thursday 19th January

The Pound experienced fluctuations yesterday, but ultimately remained close to its monthly highs against other currencies, as speculation about a potential interest rate hike by the Bank of England (BoE) continued to support the currency. Strong wage growth and higher inflation figures earlier in the week had increased expectations for further rate hikes by the BoE, helping to keep the Pound stable during yesterday’s trading session.

On the other hand, the Euro began the day strong following hawkish comments from policymakers at the European Central Bank (ECB) but fell against other currencies in the afternoon as investors shifted towards riskier investments.

The US Dollar, typically considered a safe-haven currency, initially gained strength due to an increase in US Treasury yields, but later lost ground as positive economic data and a positive market sentiment reduced concerns about a recession in the US.

Wednesday 18th January

The Pound saw an overall increase in value yesterday as the UK’s Consumer Price Index (CPI) raised the possibility of additional interest rate hikes from the Bank of England (BoE). Despite a slight decrease in headline inflation, it remained in the double digits, and core inflation remained steady rather than decreasing. With persistent high inflation in the UK, the BoE may consider another 50 basis point hike in its February meeting.

The Euro faced some volatility as investors speculated about the potential size of future interest rate increases from the European Central Bank (ECB). The final Eurozone CPI slowed as expected, but ECB policymaker Francois Villeroy de Galhau indicated that multiple 50 basis point rate hikes were still likely. The Euro saw a wide range of changes against other currencies.

The US Dollar started the day lower as positive sentiment reduced the appeal of the safe-haven currency, but later rose as worrying economic data from the US increased concerns about the state of the world’s largest economy. American retail sales dropped by 1.1% in December, which was far worse than predicted.

Tuesday 17th January

The Pound saw a significant increase in value yesterday as stronger-than-expected wage growth strengthened the possibility of interest rate hikes from the Bank of England. With the BoE keen to prevent inflationary pressures from becoming entrenched, the high reading of average earnings raised expectations that policymakers will opt for another rate hike at the bank’s meeting in two weeks.

The Euro began the day positively as Germany’s ZEW economic sentiment index exceeded expectations, showing positive territory for the first time since the Russia-Ukraine conflict in February 2022. However, the Euro faced a decline in the afternoon due to rumours of a dovish stance at the European Central Bank, with reports suggesting policymakers may slow the pace of rate hikes following the February meeting.

The US Dollar saw initial gains as a safe-haven currency during a gloomy market mood, but later decreased due to a sharp drop in US Treasury yields, possibly influenced by a larger-than-forecast decrease in Canadian inflation.

Monday 16th January

The Pound saw a decrease in value yesterday as the market’s perception of a more dovish stance from the Bank of England reduced the appeal of the currency. As the economic outlook for the UK becomes more uncertain and global inflationary pressures appear to be easing, markets anticipate that the BoE may adopt a less aggressive stance at upcoming meetings.

The Euro did not have a clear trend yesterday as investors grappled with a larger-than-expected decrease in German wholesale prices. While the data provided new evidence of cooling inflation in the Eurozone, recent hawkish statements from European Central Bank officials supported the Euro, preventing significant losses.

The US Dollar saw a small increase yesterday despite the American markets being closed for Martin Luther King Jr. Day. The increase was due to a rise in US bond yields, with the yield on the 10-year Treasury note recovering from a one-month low.

Friday 13th January

The Pound experienced an upward trend on Friday after the UK’s GDP report exceeded expectations. The economy showed growth of 0.1% in November, instead of the predicted contraction of 0.2%. This has led to speculation that the country’s recession may not be as severe as previously thought, boosting the value of GBP.

The Euro faced a setback at the end of last week, despite positive economic data from the Eurozone, as traders sought to profit from EUR’s strong performance earlier in the week. However, the currency was able to recover against some of its peers later on, as the decline in the US Dollar lifted EUR, due to the currencies’ inverse relationship.

The USD initially strengthened on Friday due to an increase in Treasury bond yields and a negative market sentiment, but weakened in the afternoon despite an improvement in the University of Michigan consumer sentiment indicator, as market sentiment improved.

Thursday 12th January

The Pound saw a decline yesterday as investors reduced their expectations for interest rate increases by the Bank of England (BoE). Factors contributing to this include a decrease in US inflation and predictions that British energy bills will decrease this year, indicating a potential decrease in UK inflation pressures.

On the other hand, the Euro gained strength yesterday due to continued expectations for aggressive interest rate increases from the European Central Bank (ECB). The ECB’s commitment to these raises contrasts with the predicted slowing or pausing of tightening cycles by the Federal Reserve and the BoE.

The US Dollar experienced a drop yesterday following the release of the latest American Consumer Price Index (CPI), which showed a significant slowdown in December. The annual inflation rate dropped from 7.1% to 6.5%, the lowest since October 2021. This caused a decrease in USD value, as well as a scaling back of bets for further aggressive interest rate increases from the Federal Reserve.

Wednesday 11th January

On Wednesday, the Pound experienced a decline in value compared to many other currencies. The reason for this decline was due to the ongoing strike action throughout the United Kingdom. Health worker unions have escalated their dispute with the government by refusing to provide evidence to the National Health Service (NHS) pay review body. As the conflicts between the government and unions continue to worsen, it is expected to have a negative impact on the British economy.

In contrast, the Euro gained strength on Wednesday. This was due to comments from two policymakers of the European Central Bank (ECB) that were perceived as hawkish. Furthermore, Olli Rehn stated that “policy rates will still have to rise significantly.” The growing number of hawkish voices at the ECB this week has led to increased speculation and investment in the Euro.

The US Dollar was relatively unchanged on Wednesday, as market sentiment was mixed. This caused the safe-haven currency to remain in a narrow range. Additionally, investors appeared to be cautious in making any bold moves before the release of the Consumer Price Index (CPI) reading, which has the potential to cause significant market fluctuations.

Tuesday 10th January

The Pound saw a drop in value due to concerns from business leaders about the reduction of energy support by the government set to take place in April. The ongoing dispute between public sector unions and the government also contributed to worries about the state of the UK economy.

It was a different day for the Euro which had some success during Tuesday’s trading. Isabel Schnabel, a member of the European Central Bank (ECB), stated that more interest rate increases are necessary, which led to increased anticipation of further action. However, the situation in Ukraine and the possibility of further escalation limited the EUR’s potential gains.

The US Dollar remained relatively stable on Tuesday, with minimal gains against other currencies. A cautious market sentiment and an increase in US Treasury yields provided some support for the safe-haven currency. However, the speech from Federal Reserve Chair Jerome Powell dampened expectations for the USD as he provided no indication about future monetary policy decisions.

Monday 9th January

The Pound had a difficult time gaining a clear direction due to a lack of significant data from the UK. However, it did manage to make some gains against other weaker currencies. This may have been due to the expectation that the Bank of England (BoE) will increase interest rates at its next meeting.

The Euro gained strength on Tuesday due to the Eurozone’s unemployment rate remaining at a record low of 6.5% in November. This indicates that the Eurozone’s labour market is continuing to be resilient despite other economic challenges.

As for the US Dollar, it faced headwinds on Monday due to an overall positive market sentiment. Additionally, a decline in US Treasury bond yields and the expectation that the Federal Reserve may choose to implement smaller interest rate increases in the future also contributed to the USD’s decline.

Friday 6th January

The Pound struggled at the end of the week as the economic outlook for the UK weighed heavily on the currency. UK construction activity shrunk and house prices continued to decline but the Pound did manage to make gains against a number of safer peers during the afternoon as market mood shifted.

The Euro edged higher at the start of trading although it quickly turned as the single currency reacted to a cooling of inflation in the Eurozone. It also faced more losses as improvements in the market mood meant that it lost ground against a number of riskier peers.

The US Dollar also faced headwinds as an improved US jobs report left investors looking at other markets. More jobs were added to the US economy in December and the US labour market remains in a good position although this was not enough to sway the Greenback in the opposite direction.

Thursday 5th January

Ongoing concerns around the UK economy left the Pound in a weak position. The final services PMI came in lower than expected and that meant that the UK’s crucial services sector continued to contract during December.

It was a different story for the Euro as it made ground against a number of riskier peers following a downturn in market mood. However, it did struggle against a number of stronger rivals as a result of its negative correlation with the US Dollar.

The US Dollar pushed upwards following a boost from promising jobs data which means that interest rates are likely to be raised by the Federal Reserve. Employment figures came in at 235,000 which was higher than the expected 150,000, helping to give the safe–haven currency a boost.

Wednesday 4th January

It was a mixed day for the Pound as it improved against a number of safer peers but struggled elsewhere as a result of a risk-on market mood. Any potential gains were capped by a worsening of the cost-of-living crisis with credit card borrowing rising in November, indicating that households are struggling.

The Euro fell despite the final services PMI coming in higher than initially expected. This downside was also down to an upbeat market mood as well as a potential drop in interest rate rise expectations.

As a result of a positive market mood and a drop in US Treasury bond yields, the US Dollar fell. US manufacturing activity also contracted and this added to the Greenback’s losses.

Tuesday 3rd January

The Pound made ground against weaker rivals although it failed to make gains against safer options. The UK economy is facing a bleak future as economists hinted that they expect the recession in the UK to be the longest of all G7 nations.

As inflation fell for the second month in a row in Germany, the Euro lost ground. This left investors preparing for additional action by the European Central Bank.

A mixed market mood meant that the US Dollar experienced a mixed day of trading. Following the sell-off last year, markets were looking for technical repositioning and so, any additional gains were capped.

Monday 2nd January

As 2023 begins, the future is looking worrying for the UK economy. Investors will shift their focus to the depth of the recession and the ongoing tightening cycle that is being implemented by the Bank of England.

The war in Ukraine and the action that the European Central Bank will take on interest rates are going to have an impact on the Euro. This could mean that the single currency experiences some volatility at the beginning of the year.

A possible global recession could see demand rise for the US Dollar, helping to push it upwards, especially if the US economy is not hit as hard as other countries. Furthermore, the monetary policy from the Federal Reserve could also help to boost the Greenback.



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