Weekly Report – 16th January – 20th January 2023

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.

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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.

Currency Ranges for the week:

GBP/USD: Low: 1.21725 High: 1.2426

GBP/EUR: Low: 1.12552  High: 1.14575

EUR/USD: Low:1.07692  High:1.08798

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