Monthly Currency Report – January 2024

Friday 26th January – The Pound (GBP) exhibited a lack of clear direction in its trade, a scenario attributed to the absence of significant UK economic data. Notably, the currency was shielded from losses by an optimistic market sentiment prevailing towards the end of the week.

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Conversely, the Euro (EUR) encountered initial pressure on Friday due to an unexpected decline in German consumer confidence leading into February. Despite this, the single currency found respite in its robust negative correlation with a weakening US Dollar (USD), leading to success during the latter part of the session.

During the same session, the US Dollar experienced a decline as a prevailing risk-on mood in the markets diminished the appeal of the safe-haven currency. Despite a slightly larger-than-forecast cooldown in the core PCE price index for December, the USD managed to recover some losses in the afternoon.

Thursday 25th January

The Pound (GBP) stumbled following gloomy retail sales data from the Confederation of British Industry (CBI). This downturn, with the CBI’s retail sales balance hitting a three-year low, was attributed to the cost-of-living crisis impacting consumer spending, challenging the optimism over the UK’s economic outlook..

Similarly, the Euro (EUR) slumped on Thursday after the European Central Bank’s (ECB) first interest rate decision of 2024. Despite efforts by ECB President Christine Lagarde to dispel rate cut speculation, investors remained unconvinced, anticipating rate cuts due to falling inflation and economic weakness in the Eurozone.

On the same day, the US Dollar (USD) traded without a clear direction, despite stronger-than-expected US GDP data. The American economy’s 3.3% expansion in the final quarter of 2023 did not boost the safe-haven ‘Greenback,’ as a risk-on market mood prevailed.

Wednesday 24th January

The Pound (GBP) found success after the UK’s services PMI for January exceeded expectations. The positive preliminary results, indicating higher-than-expected service sector activity, contributed to the boost in GBP.

Conversely, the Euro (EUR) initially slipped on Wednesday due to the Eurozone’s January PMI results pointing to a continued contraction in business activity. However, the EUR managed to recover some losses, leveraging its strong negative correlation with a weaker US Dollar (USD).

The US Dollar slumped on the same day as a risk-on market mood diminished demand for the safe-haven ‘Greenback.’ Although stronger-than-forecast PMI results provided some cushion later in the day, they were insufficient to reverse the currency’s losses.

Tuesday 23rd January

The Pound (GBP) slipped against many rivals, despite UK government borrowing falling below forecasts, prompting speculation of spring tax cuts from Chancellor Jeremy Hunt. Nevertheless, Sterling failed to gain ground against stronger counterparts.

The Euro (EUR) faced selling pressure on Wednesday as investors continued to avoid the currency ahead of the European Central Bank (ECB) interest rate decision. In the afternoon, an unexpected deterioration in Eurozone consumer confidence added to the currency’s challenges.

The US Dollar (USD) enjoyed support on the same day as rising US Treasury bond yields buoyed the ‘Greenback.’ However, a shifting market mood seemed to limit the safe-haven currency’s upside.

Monday 22nd January

As the week commenced, the Pound (GBP) ticked higher, defying concerns about a potential recession in the UK economy at the end of 2023. Despite forecasts suggesting a contraction in UK GDP in the final quarter of 2023, the EY Item Club remained optimistic about the economic outlook in the next two years.

Conversely, the Euro (EUR) softened as a lack of economic data left the single currency struggling to garner support. Investors hesitated to bet on the EUR ahead of the European Central Bank (ECB) decision on Thursday, amid speculation surrounding potential interest rate cuts.

On the same day, the US Dollar (USD) traded in a narrow range as investors awaited high-impact American data later in the week. This left the ‘Greenback’ rangebound, resilient to losses despite falling US Treasury bond yields.

Friday  19th January

The British Pound (GBP) encountered substantial selling pressure on Friday, driven by a significant downturn in UK retail sales that fueled concerns about an impending recession. December witnessed a sharp 3.2% decline in British sales growth, far surpassing the anticipated 0.5% decrease.

At the end of the previous week the Euro had no clear trajectory, navigating through a dynamic market mood. The larger-than-expected contraction in German producer price inflation exerted pressure on the EUR, causing it to slip against its more robust counterparts.

The US Dollar (USD) experienced mixed trading at the end of the week due to a fluctuating market sentiment. As risk sentiment underwent shifts throughout the day, the safe-haven ‘Greenback’ followed suit.

Thursday 18th January

It was a struggle for the Pound to establish a clear direction on the preceding day, lacking notable UK data to guide its course. The robust inflation data from Wednesday may have continued to offer some support to Sterling, cushioning its losses against stronger rivals.

The Euro (EUR) faced challenges on Thursday after the release of the European Central Bank’s (ECB) meeting minutes, revealing policymakers’ concerns about the Eurozone’s growth outlook. An upswing in the US Dollar (USD) also weighed on the common currency, reflecting its strong negative correlation with the USD.

The initially subdued safe-haven US Dollar found support later in the session after an unexpected drop in US jobless claims last week, countering the improvement in market sentiment.

Wednesday 17th January

The British Pound (GBP) surged on the preceding day following the release of the UK’s latest consumer price index, surpassing expectations. December witnessed an unexpected acceleration in the UK headline inflation, prompting markets to scale back bets on potential interest rate cuts from the Bank of England (BoE).

The Euro (EUR) witnessed an upward movement against its weaker peers on Wednesday. Confirmation of an acceleration in Eurozone inflation last month and the prevailing risk-off market sentiment provided support for the EUR. However, the single currency’s upside was restricted due to its strong negative correlation with the US Dollar (USD).

In contrast, the US Dollar continued its ascent on Wednesday, reaching a five-week high amidst the growing anxiety prevailing in the market. Support for the ‘Greenback’ also came from US retail sales data, indicating higher-than-forecast domestic sales growth in December.

Tuesday 16th January

The British Pound (GBP) exhibited a subdued performance on the previous day as a cooling off in UK wage growth increased expectations of an imminent interest rate cut from the Bank of England (BoE). Average earnings growth decelerated from 7.2% to 6.6% in the three months to November, impacting GBP as wage inflation is closely monitored by the BoE.

There were challenges for the Euro on Tuesday, despite an unexpected rise in Germany’s economic sentiment index for January. A larger-than-anticipated decline in Eurozone consumer inflation expectations might have weighed on the EUR. The currency also experienced a setback due to its negative correlation with a strengthening US Dollar (USD).

The US Dollar rallied on Tuesday as investors sought refuge in the safe-haven currency amidst widespread risk aversion. An uptick in US Treasury yields further bolstered the American currency, as markets adjusted their expectations regarding an aggressive rate-cutting cycle from the Federal Reserve.

Monday 15th January

The British Pound (GBP) witnessed mixed performance on the previous day amidst a scarcity of UK economic data. In thin trading conditions, Sterling faced declines against safer peers while gaining ground against riskier counterparts.

As for the Euro, it gained strength against several currencies on Monday as investors leaned towards the safer currency amid a pessimistic market mood. However, the limited upside for the EUR resulted from weak data, revealing a contraction in German GDP in 2023 and a shrinkage in Eurozone industrial production in November.

The US Dollar (USD) gained traction on Monday as risk-averse trade heightened the appeal of the safe-haven currency. A fresh escalation in the Middle East triggered concerns among investors after a missile from Yemen hit a US-owned container ship in the Gulf of Aden.

Friday  12th January

Last week concluded with the British Pound (GBP) navigating through fluctuations, exhibiting a general downward trend due to a blend of conflicting UK GDP data. Despite November’s monthly figure surpassing predictions, concerns heightened as the three-month average unveiled a more significant-than-expected contraction in the UK economy, stirring fears of a potential recession and impacting the GBP.

The Euro (EUR) experienced a dip during Friday’s session, influenced by a subtle shift in market sentiment and the absence of substantial Eurozone data support. Comments from European Central Bank (ECB) Chief Economist Philip Lane might have cushioned the EUR losses, emphasising that the bank was not currently contemplating any interest rate cuts.

Friday’s trade for the US Dollar (USD) was marked by unpredictability, triggered by an unexpected drop in producer prices in December, which affected the ‘Greenback.’ Nevertheless, the latter part of the session witnessed a recovery for the USD as rising tensions in the Middle East revived its safe-haven appeal.

Thursday 11th January

Market sentiment took the lead in steering the direction of the British Pound (GBP) on Thursday, as Sterling faced challenges, conceding ground against safer currencies. Despite speculations about the Bank of England (BoE) considering an earlier interest rate cut, GBP found success in certain quarters, buoyed by projections of a rapid decline in inflation over the coming months.

The Euro (EUR) exhibited strength on Thursday following the release of the European Central Bank’s (ECB) economic bulletin, indicating a reluctance to entertain the idea of cutting interest rates. However, persistent concerns regarding a Eurozone recession hindered the EUR’s upward momentum.

Thursday’s session witnessed the US Dollar (USD) surging higher, fueled by a higher-than-expected US consumer price index. December’s inflation figures exceeded forecasts, prompting some traders to reassess expectations of aggressive interest rate cuts from the Federal Reserve and propelling the USD to higher ground.

Wednesday 10th January

Stability was the theme for the British Pound (GBP) on Wednesday, as it managed modest gains against weaker counterparts, riding on the coattails of a cautiously optimistic market sentiment. Testimony from Bank of England (BoE) Governor Andrew Bailey had minimal impact on Sterling’s trajectory, as Bailey scarcely touched upon monetary policy.

The Euro (EUR) inched upwards against various rivals on Wednesday, despite European Central Bank (ECB) Vice-President Luis de Guindos warning of a potential Eurozone recession. De Guindos reiterated the bank’s commitment to maintaining the current interest rates for an extended period, contributing to the Euro’s appeal.

Wednesday’s trade for the US Dollar (USD) was marked by initial pressure, attributed to a drop in US Treasury yields. Despite later stabilisation of yields, an improved market mood lessened the safe-haven allure of the USD.

Tuesday 9th January

With a lack of prominent UK data, the British Pound (GBP) moved without a clear direction on Tuesday, softening against stronger peers and maintaining stability elsewhere. The absence of impactful economic releases exposed the increasingly risk-sensitive GBP to a cautious market mood, placing pressure on its performance.

The Euro’s (EUR) trajectory on Tuesday remained uncertain, though it fared better than the Pound, responding to mixed data. Unexpected contraction in German industrial production negatively impacted EUR, while a surprise drop in Eurozone unemployment provided some support. The bloc’s jobless rate reached a joint record low in November.

Tuesday’s session saw the US Dollar (USD) climbing higher, propelled by a sombre investor mood. Concerns about the darkening global geopolitical outlook, particularly in the Middle East, influenced market sentiment.

Monday 8th January

Monday saw the British Pound (GBP) making modest gains despite a lack of economic data and a subdued market mood. Investor optimism stemmed from a scaling back of expectations for Bank of England (BoE) interest rate cuts, following indications of robust consumer spending and persistent services inflation.

The Euro (EUR) found support on Monday after a surprisingly strong recovery in German exports, with growth rebounding from -0.2% in October to 3.7% in November. Positive shifts in Eurozone economic sentiment and consumer inflation expectations further boosted EUR, though contracting retail sales and weaker German factory orders limited its upside.

Monday’s performance for the US Dollar (USD) was characterised by a muted showing, softening against stronger peers and wavering elsewhere, despite a risk-off market mood. The decline was attributed to market expectations of a Federal Reserve interest rate cut in March, and a subsequent increase in risk appetite further contributed to USD weakening.

Friday  5th January – The Pound (GBP) stumbled in yesterday’s session, reacting to the latest UK manufacturing PMI. December’s finalized numbers revealed a slightly weaker growth in the UK factory than initially anticipated. This did little to assuage fears of a UK recession.

On the same day, the Euro (EUR) experienced a decline as the Eurozone’s PMI figures fell short of expectations. These results indicated a further slowdown in the private sector, sparking concerns about a potential recession in the bloc.

Meanwhile, the US Dollar (USD) soared following bullish remarks by Federal Reserve policymaker John Williams. His warnings about market overreactions to the Fed’s recent rate decision, perceived as dovish, led to a surge in the Dollar’s value. Williams also pushed back against speculations regarding rate cuts.

Thursday 4th January

The Pound (GBP) strengthened in yesterday’s session following the release of the UK’s latest services PMI, surpassing expectations.

A more substantial than expected expansion in the crucial services sector, revealed in December’s finalized PMI reading, was welcomed by GBP investors. It fostered hopes that the UK might sidestep a recession.

In contrast, the Euro (EUR) surged on Thursday in response to Germany’s recent consumer price index.

Preliminary CPI figures for December showed a rise in German inflation from 3.2% to 3.7%. This marked the first inflation increase in seven months, boosting the Euro as it dispelled expectations of an interest rate cut by the European Central Bank (ECB).

Meanwhile, the US Dollar (USD) remained subdued, impacted by the minutes from the Federal Reserve’s recent policy meeting that continued to undermine USD sentiment.

Nevertheless, the ‘Greenback’ managed to recover some of its losses later in the US trading session after the latest US jobs data surpassed expectations.

Wednesday 3rd January

The Pound (GBP) saw an upward tick in yesterday’s session, fueled by optimism that robust consumer spending during the holiday season might have steered the UK away from a 2023 recession.

Data indicated that UK supermarkets experienced their busiest Christmas period since 2019, despite many consumers still grappling with high interest rates and soaring inflation.

On the other hand, the Euro (EUR) grappled with momentum on Wednesday following the release of Germany’s latest jobs report.

December’s statistics showed an increase in unemployment in the Eurozone’s largest economy, reaching 5.9%, its highest level since May 2021. However, the uptick in unemployed individuals was smaller than anticipated.

Meanwhile, the US Dollar (USD) dipped during yesterday’s trading session post the release of minutes from the Federal Reserve’s recent policy meeting.

The minutes unveiled that most Fed policymakers remain confident about controlling inflation, though some expressed concerns about the potential stifling impact of ‘overly restrictive’ monetary policies on US economic growth.

Tuesday 2nd January

The Pound (GBP) stumbled in yesterday’s session, reacting to the latest UK manufacturing PMI. December’s finalized numbers revealed a slightly weaker growth in the UK factory than initially anticipated. This did little to assuage fears of a UK recession.

Meanwhile, the US Dollar surged at the beginning of the year as cautious sentiments led jittery investors to favour the safe-haven currency.

These gains were bolstered by a significant increase in US Treasury yields, ahead of some impactful US data releases scheduled later in the week.

Currency Ranges for the month:

GBP/USD: Low: 1.26099 High: 1.27805

GBP/EUR: Low: 1.14733 High: 1.17443

EUR/USD: Low: 1.08155  High: 1.10734

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