Weekly Report – 18th July to 22nd July 2022

Friday 22nd July – It was a defensive end to the week for the Pound as UK retail sales have contracted for the second month in a row. However, losses were kept to a minimum as the latest preliminary PMI came in above expectations this month.

 

It was a similar story for the Euro as the release of the latest PMIs which indicated that the manufacturing and services sector dropped to levels that were not expected. This meant that investors were concerned about the fact that the manufacturing index had moved into contraction territory, increasing worries that a recession could happen.

The US Dollar started off strongly as a risk-off market mood helped to give the currency a boost. Despite this, the release of the latest S&P US services PMI rapidly changed things for the safe-haven currency as it suffered from a significant contraction this month.

Thursday 21st July

The Pound experienced a sharp drop during the start of the session after the release of the latest public sector borrowing figures showed that the UK public finances are in a difficult position. Despite some fluctuation during the day, Sterling ended the day with overall losses.

The half-point rate rise from the European Central Bank left the Euro volatile during trading. The increased interest rate rise surprised markets and this caused the single currency to push higher. However, recession concerns meant that the Euro lost any gains by the end of the day.

As market sentiment shifted, the US Dollar wavered through the day with a downbeat mood coming out on top. Initial jobless claims increased which might have placed a limit on any gains as it was found that the labour market might be easing.

Wednesday 20th July

The latest inflation data caused the Pound to wobble during trading as it came in higher than expected. This might have enhanced Bank of England rate rise bets although they didn’t do anything to ease concerns about the cost of living.

There was lots of fluctuation for the Euro as it trended lower eventually with concerns around the Russian gas supply undermining the appeal of the single currency. There was some support around the expectations of a rate hike from the ECB although gas supply fears took hold.

The US Dollar pushed higher as it overcame two days of losses. The energy crisis in Europe put fear into markets and this drop in sentiment helped to enhance the appeal of the safe-haven currency.

Tuesday 19th July

The Pound lost ground against a number of peers after a disappointing jobs report dented the appeal of the currency. While the labour market seems secure and unemployment at a 48-year low, wage growth is a concern and it looked likely that the Bank of England might not raise rates as high as expected.

There was a surge in the Euro as it pushed higher following news that the European Central Bank would implement a 50-bp rise. A 25-bp rise had already been priced in by markets although it was expected that a larger hike would be likely.

It was a different story for the US Dollar as it lost ground as an upbeat market mood dented the safe-haven currency demand. Along with this, a lack of data meant that there was very little support for the Greenback.

Monday 18th July

Following hawkish comments from the Bank of England, the Pound strengthened. The  BoE said that the Bank Rate was unlikely to go above 2% in the coming year although there might be some time left in the tightening cycle and so, the potential increase in interest rates gave the Pound a boost.

The Euro made up ground against many of its peers as it benefited from a negative correlation with the US Dollar. It also got support ahead of the interest rate decision from the European Central Bank, with a rise of 25 basis points expected.

There were further losses for the US Dollar as investors prepared for a 100-bp rate rise at the next Federal Reserve meeting. While there was opposition for the rise, it helped to boost markets which meant that demand for the safe-haven currency dropped.

Currency Ranges for the week:

GBP/USD: Low: 1.19961 High: 1.20509

GBP/EUR: Low: 1.16582  High: 1.18194

EUR/USD: Low: 0.01236  High: 1.02689

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