Friday 3rd March – On Friday, the Pound (GBP) strengthened as the final PMI results for the UK surpassed initial estimates. The services sector, responsible for 80% of the country’s economic output, expanded at a rate not seen since June 2022, raising hopes that the UK may avoid a recession this year.
In contrast, the Euro (EUR) stumbled initially due to disappointing data from the Eurozone, with the final PMI coming in lower than expected. The European Central Bank (ECB) rate rise bets were dampened further by a contraction in the monthly producer price index, though hawkish comments from multiple ECB officials helped the currency recover some of its losses. Overall, EUR remained mostly stagnant.
The US Dollar (USD) fluctuated throughout Friday’s session, with conflicting factors pulling it in different directions. On the one hand, Federal Reserve rate hike bets supported the currency, but on the other hand, a risk-on market mood offset some of those gains. The latter eventually won out, as increasing risk appetite caused the USD to decline in the evening. A strong US services PMI failed to provide lasting gains, though it may have contributed to traders’ positive sentiment.
Thursday 2nd March
Investors scaled back their expectations of further rate hikes, causing the Pound (GBP) to continue its slide. In a speech, BoE Chief Economist Huw Pill acknowledged a “stronger than anticipated” economy, but failed to inspire confidence in the currency.
Meanwhile, the Euro (EUR) weakened as the latest Eurozone CPI flashes revealed a drop in headline inflation to 8.5% in February. However, the currency was cushioned against further losses by rate hike bets, which were underpinned by core inflation printing at 5.6%.
On the other hand, the US Dollar (USD) managed to make a slight recovery on Thursday, thanks to the latest initial jobless claims data. The report, which showed the US labour market remained hot with 190,000 claims for the week ending 25 February, fueled Federal Reserve rate hike bets.
Wednesday 1st March
The Pound (GBP) experienced a decline in value after Bank of England (BoE) Governor Andrew Bailey’s notably dovish speech. Bailey implied that interest rates may have reached their peak and stressed the need for a data-driven approach. In response, investors betting on higher rate hikes sold Sterling aggressively, leading to a decline in its value.
On the other hand, the Euro (EUR) strengthened yesterday, driven by Germany’s inflation data for February. Headline inflation unexpectedly remained at 8.7%, leading to heightened rate hike bets. Coupled with the upticks in inflation in France and Spain, the data placed further pressure on the European Central Bank (ECB).
The US Dollar (USD) struggled for support yesterday, as the February ISM manufacturing PMI came in at 47.7, below the forecast of 48. This reflected a slowdown in the manufacturing sector, which led to concerns about the future of economic growth and the condition of the US economy.
Tuesday 28th February
The Pound (GBP) experienced a rally as optimism surrounding PM Rishi Sunak’s ‘Windsor Framework’ continued to grow. As investors and analysts delved into the details of the new deal, hopes for a stronger UK-EU trade relationship boosted Sterling sentiment.
The Euro (EUR) had a mixed day in trading, but was supported by bets on further tightening by the European Central Bank (ECB). With the increase in inflation in France and Spain, there is mounting pressure on the ECB to pursue further tightening. However, a mixed market mood prevented the single currency from capitalising on these gains.
On the other hand, the US Dollar (USD) struggled yesterday, following the release of February’s consumer confidence index. The index came in at 102.9, far below the expected print of 108.5, indicating a decline in confidence from US households. Inflation expectations also fell to 6.3%, easing some of the pressure on the Federal Reserve.
Monday 27th February
The Pound (GBP) gained ground as PM Rishi Sunak announced a new deal on the Northern Ireland Protocol, known as the ‘Windsor Framework.’ This deal helped to avoid further tensions between the UK and Europe, boosting investor confidence in Sterling.
The Euro (EUR) traded within a tight range on Monday, following the release of the Eurozone’s economic sentiment index for February. The index fell to 99.7, lower than expectations for a rise above the long-term average of 101, due to concerns about high inflation. Analysts cautioned that the data may signal a slowdown in Eurozone growth during the first quarter, leading to weakness in the single currency.
The US Dollar (USD) struggled on Monday, as durable goods orders data for January printed worse than expected, with a monthly decline of 4.5% versus the forecasted 4% fall. This, coupled with a mixed market sentiment, kept the safe-haven Greenback on the back foot. The Dallas Fed manufacturing index also slipped to -13.5, adding to the negative outlook for the USD.
Currency Ranges for the week:
GBP/USD: Low: 1.19257 High: 1.21347
GBP/EUR: Low: 1.1245 High: 1.14199
EUR/USD: Low: 1.05536 High: 1.06861