Weekly Report – 13th February – 17th February

Friday 17th February – Last Friday, the Pound (GBP) experienced a rebound following an initial drop, as indications emerged that a significant Brexit matter might soon be resolved. UK PM Rishi Sunak met with European Union members in Northern Ireland, and many participants left the meeting with a sense of optimism, including Irish Premier Leo Varadkar, who expressed quiet confidence in an impending resolution. This development brought joy to GBP investors after a sluggish start to the day.

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Meanwhile, the Euro (EUR) had a lacklustre performance in trading at the end of the week, despite the European Central Bank (ECB) delivering hawkish speeches that provided some support. Isabel Schnabel and Francois Villeroy de Galhau, both ECB policymakers, expressed concerns about persistent inflation. Schnabel also noted that the ECB would need to take more forceful measures if the economy’s response was weaker than expected. On

The US Dollar (USD) experienced fluctuations, initially receiving a boost from a decline in market sentiment. However, the safe-haven currency gave up most of its gains by the end of the session after a couple of Federal Reserve policymakers made dovish remarks.

Thursday 16th February

With little economic data available, the Pound (GBP) faced downward pressure on speculation that the Bank of England (BoE) might halt its rate hikes. After Wednesday’s lower-than-anticipated Consumer Price Index (CPI) figures, investors and analysts adjusted their expectations. While a 25 basis point increase is projected for March, the possibility of further tightening from the BoE remains uncertain.

On Thursday, the Euro (EUR) saw mixed trading, despite European Central Bank (ECB) President Christine Lagarde’s pledge of an additional 50 basis point interest rate hike. Speaking to the European Parliament, President Lagarde reaffirmed the ECB’s goal of curbing inflation. However, analysts were uncertain about the ECB’s future direction. Some observers played down the ECB’s concerns about core inflation, leaving the shared currency in a state of uncertainty.

The US Dollar (USD) gained strength as the latest Producer Price Index (PPI) data revealed an above-anticipated increase. Moreover, jobless claims decreased by 1,000, suggesting a tight labour market. As a result, there is still room for the Federal Reserve to pursue monetary policy tightening since inflation seems to be more persistent than anticipated.

Wednesday 15th February

Yesterday, the Pound (GBP) experienced a significant drop after the release of January’s Consumer Price Index (CPI) figures, which were below expectations. With both headline and core inflation dropping considerably, GBP investors reduced their expectations of additional monetary tightening. This development may provide the Bank of England (BoE) with room to consider pausing its current cycle, much to the disappointment of GBP investors.

The Euro (EUR) made gains broadly, although it may have been limited by a larger-than-anticipated decline in industrial production. December’s data revealed a sharp slowdown in industrial output, which could have heightened recession worries among EUR investors. However, cautious trading kept the safer Euro afloat.

On Wednesday, the US Dollar (USD) gained ground as January’s retail sales figures were unexpectedly high, with a 3% increase compared to expectations of 1.8%. The data indicated a focus on supply-constrained goods, which could generate additional inflationary pressures. As a result, USD investors raised their expectations for more Federal Reserve rate hikes.

Tuesday 14th February

On Tuesday, the Pound (GBP) experienced a surge, propelled by the latest employment data, which indicated that the UK’s labour market remained tight. The unemployment rate stayed at 3.7%, below pre-pandemic levels, and more jobs were created than anticipated. Additionally, with wage growth above expectations, the Bank of England (BoE) faced increasing pressure to continue its efforts to contain inflation.

The Euro (EUR) was supported by a series of positive data releases across the Eurozone, including GDP estimates indicating expansion and a robust labour market in the Eurozone. Moreover, German wholesale prices ticked up, providing investors with the opportunity to renew their expectations for rate hikes.

The US Dollar (USD) gained ground following the release of January’s Consumer Price Index (CPI) data. Headline inflation, predicted to cool to 6.2%, was reported at 6.4%, dropping only by 0.1% from the previous month. As a result, USD investors wagered on additional rate hikes from the Federal Reserve, as inflation appears to be more persistent than anticipated.

Monday 13th February

On Monday, despite negative headlines in the UK, the Pound (GBP) gained ground on the back of a positive market sentiment. While business optimism appeared to stall, Sterling was supported by its sensitivity to market risk.

The Euro (EUR) was also boosted by the European Commission’s optimistic winter forecast, which suggested the Eurozone would avoid recession this year. However, gains in the common currency were limited by concerns about escalating tensions between Russia and Ukraine.

Meanwhile, the US Dollar (USD) struggled to make gains on Monday as a positive trading mood weighed on the safe-haven currency, although geopolitical tensions between the US and China helped cushion USD somewhat. Over the weekend, the US downed several objects in a rising conflict with China.

Currency Ranges for the week:

GBP/USD: Low: 1.19196 High: 1.22185

GBP/EUR: Low: 1.12012 High: 1.13524

EUR/USD: Low: 1.06188  High: 1.07688


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