Monthly Currency Report – July 2023

Friday 28th July – Despite the absence of UK economic data, the Pound (GBP) wrapped up the previous week on an optimistic note, driven by expectations of a more hawkish approach from the Bank of England (BoE). This bolstered the Sterling’s position, causing it to gain ground against its struggling counterparts.

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Meanwhile, the Euro (EUR) faced an initial stumble on Friday due to disappointing German GDP figures, failing to meet the expected 0.1% growth in the second quarter. Nevertheless, the single currency displayed resilience and regained strength as the session progressed, benefiting from its inverse relationship with a weakening US Dollar (USD).

On the other hand, the US Dollar (USD) had experienced a surge in value earlier in the week following robust GDP data. However, it encountered some profit-taking at the beginning of Friday’s session, resulting in losses that couldn’t be recovered throughout the day. A cooling down in the core PCE price index, the Federal Reserve’s preferred gauge of inflation, weighed down on bets related to the Fed’s actions.

Thursday 27th July

On the trading front, the British Pound (GBP) exhibited significant fluctuations yesterday due to the impact of the US GDP report and the European Central Bank’s (ECB) decision on the market. The Pound faced some pressure when the Confederation of British Industry (CBI) released a distributive trades survey that showed an unexpected decline, slipping from -9 to -25.

Meanwhile, the Euro (EUR) experienced a sharp decline in the afternoon after the ECB’s decision to implement what could be the final interest rate hike in its current tightening cycle. ECB President Christine Lagarde stated that the bank’s future actions would depend on data, leaving many uncertain about further rate increases due to declining inflation and weaker economic growth.

In contrast, the US Dollar (USD) initially weakened following the Federal Reserve’s interest rate decision but later surged as the US GDP unexpectedly expanded in the second quarter. This unexpected growth reignited expectations of further tightening by the Fed, and positive economic indicators such as durable goods orders and initial jobless claims exceeded forecasts.

Wednesday 26th July

During yesterday’s trading session, the British Pound (GBP) saw an upward movement despite the absence of significant UK economic data. This upward trend was fueled by renewed expectations of a 25bps interest rate hike by the Bank of England (BoE) in the upcoming week. Unlike some other central banks globally, the BoE is considering a more prolonged hiking cycle.

The Euro (EUR) exhibited muted movement as investors refrained from readjusting their positions ahead of the European Central Bank’s (ECB) interest rate decision. Though a 25bps interest rate hike was largely anticipated, uncertainty prevailed regarding the bank’s future policy outlook, resulting in subdued trading activity for the single currency.

As for the US Dollar (USD), its performance was mixed throughout the day. While it gained ground against weaker currencies, a risk-off sentiment supported the safe-haven currency against riskier peers. In the evening, the Federal Reserve implemented the expected 25bps interest rate hike. However, Fed Chair Jerome Powell’s ambiguous stance on the possibility of further rate hikes in September caused a notable decline in the USD.

Tuesday 25th July

The British Pound (GBP) managed to strengthen against its weaker counterparts yesterday, driven by better-than-expected data from the Confederation of British Industry (CBI). Additionally, an overall positive market sentiment also contributed to Sterling’s gains, as the currency has become increasingly sensitive to risk in recent times.

On the other side, the Euro (EUR) faced downward pressure following a larger-than-expected drop in German business morale, reflecting waning confidence in the Eurozone’s largest economy.

Despite a risk-on market mood, the US Dollar (USD), a safe-haven currency, encountered some headwinds yesterday. However, it managed to hold its ground as market participants hesitated ahead of the Federal Reserve’s interest rate decision scheduled for later that day. A higher-than-anticipated increase in US consumer confidence failed to provide substantial support for the USD as it was overshadowed by broader market dynamics.

Monday 24th July

The British Pound (GBP) started the week on a stumbling note as the latest PMI data indicated that the UK economy was on the verge of stalling in the current month. The PMI figures pointed to a slowdown in private sector activity and easing inflationary pressures, which contributed to diminishing expectations of an imminent interest rate hike by the Bank of England (BoE).

Similarly, the Euro (EUR) experienced a sharp decline yesterday as the Eurozone’s PMI data fell short of expectations. The bloc’s manufacturing activity contracted at its fastest pace in three years, and service sector activity also slowed to a six-month low.

Meanwhile, the US Dollar (USD) displayed mixed performance during the trading session, showing strength against weaker currencies but struggling to gain traction elsewhere. Uncertainty around fluctuating Treasury bond yields and a diverse market sentiment contributed to the USD’s mixed movements. Moreover, the latest US PMI data failed to provide a clear direction as the service sector score missed forecasts, while the manufacturing score exceeded market expectations.

Friday 21st July

The Pound (GBP) displayed a mixed performance on Friday, strengthening against its weaker counterparts but conceding ground elsewhere, despite robust UK retail sales data exceeding expectations. Sales growth of 0.7%, surpassing the projected 0.2%, failed to bolster GBP as markets continued to scale back their bets on a Bank of England (BoE) interest rate rise.

The Euro (EUR) saw some success at the week’s end, with the safer single currency gaining ground against riskier currencies in a cautious market mood. However, EUR’s upside was severely limited by its negative correlation with a stronger US Dollar, coupled with the absence of significant Eurozone economic data.

The US Dollar (USD) concluded the week on a positive note, benefiting from a decline in risk appetite as investors sought the safe-haven appeal of the ‘Greenback.’ Additionally, Federal Reserve rate hike expectations supported USD exchange rates, building on the momentum from better-than-forecast employment data reported on Thursday.

Thursday 20th July

During the session, the Pound (GBP) remained defensive as markets continued to reassess the likelihood of a Bank of England (BoE) interest rate rise following a softer CPI reading on Wednesday. However, Sterling managed to recover some losses against certain currencies in the afternoon, driven by a resurgent US Dollar that put pressure on other currencies.

The Euro (EUR) experienced fluctuations as a shifting market mood left the safer single currency struggling to find a clear direction. Other factors contributing to the uncertainty included EUR’s negative correlation with a stronger US Dollar and better-than-expected Eurozone consumer confidence data.

The US Dollar (USD) enjoyed significant support , with an unexpected decline in jobless claims boosting the American currency. As signs pointed to a tight US labour market, markets increased their expectations for more rate hikes from the Federal Reserve.

Wednesday 19th July

The Pound (GBP) faced a sharp sell-off after UK inflation figures came in softer than expected, leading markets to lower their expectations for additional Bank of England (BoE) interest rate hikes. Analysts now anticipate a 25 bps rate increase at the August meeting, rather than the previously projected 50bps, and many believe that interest rates will peak below 6%.

The Euro (EUR) initially found success , benefiting from an upward revision to the Eurozone’s core inflation rate. However, the safer single currency encountered challenges as the session progressed, driven by a growing appetite for risk and its negative trading relationship with a strengthening US Dollar (USD).

The US Dollar continued to recover some of last week’s losses, gaining ground as a safe-haven currency amid a risk-averse market sentiment. The USD seemed to benefit the most from the GBP sell-off, gaining strength through cross-driven dynamics.

Tuesday 18th July

The Pound (GBP) experienced volatility, initially rising before sliding in the afternoon. The exact catalyst for the movement was not immediately apparent, but mixed sentiments about potential UK interest rate hikes might have contributed to the fluctuations. Concerns among investors regarding tighter financial conditions leading to a potential UK recession were also in play.

The Euro (EUR) also witnessed choppy trade, struggling to find support due to a lack of significant data. Furthermore, concerns over Russia-Ukraine tensions added pressure to EUR exchange rates, with analysts worried about potential retaliation from the Kremlin after an incident on the Crimean bridge resulted in the death of two Russian civilians.

The US Dollar (USD) edged higher during the session as a decline in risk appetite boosted the appeal of the safe-haven currency. However, disappointing US retail sales data in the afternoon tempered the USD’s recovery, as sales growth unexpectedly slowed in June.

Monday 17th July

The Pound (GBP) struggled to find a clear direction, as a lack of UK data and a mixed market sentiment caused Sterling to fluctuate. Nevertheless, GBP exchange rates were supported by expectations of a Bank of England (BoE) interest rate hike, protecting the currency from significant losses.

The Euro (EUR) also traded mostly sideways during the European session, with limited market activity. However, the common currency had made gains during overnight trading, and it managed to hold onto those gains. EUR found support amid a cautious market mood and the continued weakness of the US Dollar (USD).

Despite a slightly risk-averse market sentiment, the safe-haven US Dollar failed to make substantial gains. While USD edged higher against some weaker peers, the recent pullback in Federal Reserve rate hike expectations continued to dampen the enthusiasm for the US Dollar.

Friday 14th July – Last week, the Pound (GBP) experienced a lack of clear direction in trading due to the absence of significant UK economic data. Although the Bank of England’s (BoE) rate hike expectations provided some support to Sterling, it couldn’t prevent the Pound from declining against stronger currencies.

On Friday, the Euro (EUR) strengthened as cautious market sentiment led traders to favour the safer single currency over riskier alternatives. Positive Eurozone trade data, coupled with the Euro’s negative correlation to a sluggish US Dollar (USD), further supported the EUR exchange rates.

The US Dollar struggled on Friday, recovering slightly from multi-month lows as a slightly pessimistic market sentiment prompted safe-haven flows toward the “Greenback.” However, the potential for Federal Reserve interest rate hikes remained limited, causing the USD’s upside to be significantly restricted. Consequently, the US Dollar ended the week considerably lower than its initial value.

Thursday, July 13th

Yesterday, the Pound (GBP) advanced against many of its counterparts after better-than-expected GDP data increased the market’s expectations for another 50 basis points rate hike by the Bank of England (BoE). Despite a contraction in GDP in May, the 0.1% downturn surpassed economists’ anticipated 0.3% decline. With the UK economy proving stronger than predicted, the BoE is likely to proceed with more aggressive measures.

The Euro (EUR) faced mixed factors that influenced its direction. Supportive elements included hawkish meeting minutes from the European Central Bank (ECB) and the Euro’s negative correlation with the US Dollar. However, a risk-on sentiment and weaker industrial production figures counterbalanced the Euro’s gains.

The recent downward movement of the US Dollar (USD) continued on the previous day as producer price inflation cooled more than forecasted. This added to the mounting evidence that the Federal Reserve’s interest rate hike cycle was yielding the desired effect. Consequently, market expectations for additional Fed rate hikes decreased, leading to a 15-month low for the USD.

Wednesday, July 12th

The Pound (GBP) encountered difficulties on the previous day due to the absence of significant UK economic data, making Sterling susceptible to losses. The tailwinds from Tuesday’s better-than-anticipated wage growth data waned, but ongoing rate hike expectations from the Bank of England (BoE) likely prevented more significant declines.

The Euro (EUR) experienced gains against many of its counterparts as the currency benefited from its strong negative correlation with the US Dollar. However, the safe-haven Euro faced losses against risk-sensitive currencies due to an optimistic market sentiment.

The US Dollar (USD) plummeted on the previous day after the latest consumer price index revealed faster-than-expected declines in US inflation. The headline reading dropped from 4% to 3%, reaching its lowest level in over two years, while the core rate decreased from 5.3% to 4.8%. Consequently, market expectations for additional Federal Reserve rate hikes diminished, resulting in a decline in USD exchange rates.

Tuesday, July 11th

Yesterday, the Pound (GBP) surged higher following record-high wage growth, which increased expectations of another 50 basis points rate hike by the Bank of England (BoE). Average earnings in the UK rose by 7.3% in the three months leading up to May, unexpectedly matching the previous all-time high. With concerns about a wage-price spiral, this data heightened the possibility of more aggressive actions by the British central bank.

The Euro (EUR) faced a decline due to worse-than-expected deterioration in German investor morale. The latest ZEW economic sentiment index reached its lowest level since December, raising concerns about the health of the Eurozone’s largest economy.

The US Dollar (USD) struggled to find a clear direction due to a mixed market sentiment and fluctuating US Treasury bond yields, which affected the American currency. USD investors also refrained from making aggressive bets ahead of the release of the consumer price index, which was expected to cause significant volatility in the US Dollar.

Monday, July 10th

On Monday, the Pound (GBP) weakened due to the absence of significant UK economic data, leaving Sterling vulnerable to a souring market sentiment. GBP investors were likely cautious about making bets on the Pound before the release of the crucial labour market report scheduled for the following day.

The Euro (EUR) managed to strengthen against riskier currencies while trading sideways against others. A cautious market sentiment provided support to the safer single currency. Later in the session, a decline in the US Dollar (USD) further aided the Euro.

The US Dollar initially gained ground, benefiting from its safe-haven status in the face of a bearish market sentiment. However, the USD relinquished its gains later in the session as a pullback in US Treasury yields exerted pressure on the “Greenback.”

Friday 7th July – Last Friday, the Pound (GBP) strengthened against its weaker counterparts and maintained its position against other currencies. Despite concerns about a potential recession in the UK, the expectation of additional interest rate hikes by the Bank of England (BoE) supported the GBP, resulting in a rally during the latter part of the week.

On the same day, the Euro (EUR) stumbled against stronger currencies due to an unexpected contraction in German industrial production, which had a negative impact on the common currency. However, in the afternoon, the EUR benefited from its inverse correlation with the US Dollar as the USD experienced a sell-off, allowing the Euro to recover some of its losses.

The US Dollar (USD) experienced a decline at the end of the previous week due to the latest US non-farm payrolls report falling short of expectations. The June figures were lower than anticipated, and previous readings were also revised downward. These indicators of weakness in the US labour market dampened expectations of Federal Reserve rate hikes, resulting in a decline of the ‘Greenback’.

Thursday 6th July

Despite concerns about a potential recession, the Pound (GBP) showed a significant increase in value as investors speculated on further interest rate hikes by the Bank of England (BoE). The rise in UK government bond yields, which often indicate expectations regarding BoE actions, contributed to the GBP’s upward movement.

After a period of weakening, the Euro (EUR) managed to recover against many of its counterparts during the European session on Thursday. The initial boost came from a surprisingly strong recovery in German factory orders. However, disappointing retail sales figures for the Eurozone limited the Euro’s gains, as sales growth stalled in May.

The US Dollar (USD) initially fell at the beginning of Thursday’s session but later experienced a surge following positive ADP employment change figures and better-than-expected ISM services PMI data. The strong economic indicators led to expectations of more aggressive actions from the Federal Reserve, causing the USD to rise. However, the US Dollar struggled to maintain its gains against stronger currencies.

Wednesday 5th July

The Pound (GBP) made gains against weaker currencies on Wednesday, driven by growing expectations that the Bank of England (BoE) would implement a significant 50 basis points rate hike at its August meeting. However, concerns about a potential “hard landing” limited the GBP’s upside potential, as economists predict that higher interest rates could lead the UK into a recession later this year.

The Euro (EUR) initially benefited from a gloomy market sentiment, which caused it to rise against riskier currencies during Wednesday’s session. However, the single currency struggled to maintain its upward movement due to a weak services PMI and a contraction in producer price inflation. These negative economic releases weighed on the EUR as the session progressed.

The US Dollar (USD) received some support on Wednesday due to market risk aversion. However, hesitancy ahead of the release of the Federal Reserve’s meeting minutes and a weaker factory orders print limited the USD’s gains. The minutes of the meeting revealed little new information but provided a moderately hawkish tone, which supported the ‘Greenback’.

Tuesday 4th July

The Pound (GBP) strengthened against many currencies on Tuesday, benefiting from a positive market sentiment that favoured risk-sensitive currencies. The easing of British food inflation also contributed to the support for Sterling. The prospect of falling food prices suggested a potential easing of the cost-of-living squeeze in the UK.

The Euro (EUR) faced headwinds from the beginning of the European session on Tuesday, following weaker-than-expected trade data from Germany. The Eurozone’s largest economy experienced an unexpected contraction in exports in May, leading to a narrower trade surplus. These developments raised concerns about Germany’s economic health, negatively impacting the Euro.

The US Dollar (USD) remained relatively subdued on Tuesday, as US markets were closed for the Independence Day federal holiday. Additionally, the positive market sentiment put pressure on the safe-haven ‘Greenback’, causing it to decline against stronger currencies.

Monday 3rd July

The Pound (GBP) weakened on Monday due to confirmed contraction in UK manufacturing activity, which added to concerns about the country’s economic outlook. Investors became increasingly worried about the possibility of a recession in the UK by the end of the year, and the decline in factory activity further exacerbated these concerns.

The Euro (EUR) initially stumbled on Monday after the final manufacturing PMI confirmed a contraction in Eurozone factory activity at its fastest pace in three years. However, hawkish comments from the European Central Bank (ECB) and a pullback in the US Dollar (USD) helped the Euro recover some of its losses in the second half of the session.

As the week began, the US Dollar experienced a jump in value. Renewed expectations of Federal Reserve rate hikes contributed to the rise in the USD, following a sharp decline the previous Friday. However, the ‘Greenback’ was unable to sustain its gains as the ISM manufacturing PMI unexpectedly fell to its lowest level since May 2020. This weak reading dampened expectations of Federal Reserve actions and led to a decline in the US Dollar.

Currency Ranges for the month:

GBP/USD: Low: 1.26508 High: 1.31387

GBP/EUR: Low: 1.15035 High: 1.17576

EUR/USD: Low: 1.08403 High: 1.1257

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