Weekly Report – 20th February – 24th February

Friday 24th February – On Friday, the direction of the Pound (GBP) remained uncertain as the UK lacked significant economic data. Market sentiment leaned towards risk aversion, causing the Pound to fall against its safer peers while gaining against riskier ones.

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The Euro initially stumbled, but managed to recover towards the end of the trading week. However, Germany’s final GDP reading for Q4 2022 came in worse than expected, resulting in a 0.4% contraction that weighed on the single currency. Despite this, hawkish comments from ECB policymaker Joachim Nagel boosted the Euro’s performance against its weaker counterparts.

Meanwhile, the safe-haven US Dollar benefited from risk aversion, posting gains throughout the day. This was further boosted by an unexpected increase in the core PCE price index, the Federal Reserve’s preferred measure of inflation, which strengthened the USD even more. The market responded by betting on more interest rate hikes, leading to increased strength in the US Dollar.

Thursday 23rd February

Despite Catherine Mann, one of the Bank of England’s most hawkish policymakers, calling for more tightening, the Pound struggled yesterday. Investors largely ignored her comments and instead focused on domestic concerns such as food shortages and the lack of progress on the Northern Ireland Protocol deal, which dented Sterling’s appeal.

The Euro had a muted performance despite the Eurozone’s final CPI reading, which showed unexpectedly higher core inflation. This could prompt the European Central Bank (ECB) to take more action. Additionally, worries about increased attacks along Ukraine’s eastern frontline put pressure on EUR exchange rates. However, the safer single currency managed to gain against its weaker counterparts as market sentiment turned sour in the afternoon.

The US Dollar continued to strengthen yesterday, buoyed by the tailwinds of the Federal Reserve’s hawkish meeting minutes from Wednesday evening. Despite mixed data showing a fall in jobless claims but a lower revised second GDP growth estimate, a hawkish speech from the Fed in the afternoon propelled the USD further.

Wednesday 22nd February

The Pound traded without a clear direction as there was a lack of significant UK economic data to steer it. Despite enjoying some tailwinds from the previous day’s PMI results, Brexit uncertainty prevented GBP from making significant gains.

The Euro also had a fluctuating performance, mostly moving sideways but posting losses against its stronger peers. The lacklustre performance may have been influenced by a below-forecast rise in Germany’s business climate indicator, while Russia-Ukraine woes added pressure to the common currency.

The US Dollar strengthened yesterday as a downbeat market mood prompted gains for the risk-sensitive currency. Additionally, the minutes from the Federal Reserve’s latest policy meeting added to the USD’s gains as policymakers sounded hawkish, fueling expectations of continued interest rate hikes.

Tuesday 21st February

Yesterday, the Pound experienced a surge in value as unexpectedly strong private sector activity in the UK cheered GBP bulls. The latest PMIs for the country exceeded forecasts, with the services sector exhibiting a surprise return to growth this month. This result not only suggested a more resilient UK economy but also raised expectations for further monetary tightening from the Bank of England (BoE).

On the other hand, the Euro had mixed movement yesterday, slipping against its stronger peers due to positive economic data and Russia-Ukraine tensions that pulled the currency in two different directions. While the Eurozone PMIs and Germany’s ZEW economic sentiment index beat forecasts, fears of an escalation in Ukraine weighed down EUR exchange rates. Russian President Vladimir Putin delivered a hostile speech amid expectations of a new offensive this week.

The safe-haven US Dollar enjoyed a risk-off market mood yesterday as growing geopolitical tensions triggered bearish trade. However, the USD relinquished some of its gains in the afternoon, despite stronger-than-expected PMI results.

Monday 20th February

The Pound saw a decline in value as hopes of resolving the Northern Ireland Protocol dispute dissipated. Despite reports last week that a resolution may be reached this week, No. 10 stated that no deal had been finalized yet, leading to disappointment among GBP investors and a drop in the currency’s value.

The Euro was relatively quiet yesterday due to a risk-on mood and concerns about Russia-Ukraine tensions, which kept EUR investors on the defensive. Nonetheless, hawkish remarks from Olli Rehn of the European Central Bank (ECB) and an improvement in Eurozone consumer confidence may have limited the currency’s losses.

With US markets closed for the Presidents’ Day holiday, the US Dollar saw subdued trading yesterday. Although a moderately optimistic market mood put pressure on the safe-haven currency, expectations of Federal Reserve interest rate increases helped to mitigate USD’s losses.

Currency Ranges for the week:

GBP/USD: Low: 1.1933 High: 1.21379

GBP/EUR: Low: 1.12556 High: 1.1382

EUR/USD: Low: 1.05381  High: 1.06916


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