Weekly Report – 2nd January – 6th January 2023

Friday 6th January -The Pound struggled at the end of the week as the economic outlook for the UK weighed heavily on the currency. UK construction activity shrunk and house prices continued to decline but the Pound did manage to make gains against a number of safer peers during the afternoon as market mood shifted.

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The Euro edged higher at the start of trading although it quickly turned as the single currency reacted to a cooling of inflation in the Eurozone. It also faced more losses as improvements in the market mood meant that it lost ground against a number of riskier peers.

The US Dollar also faced headwinds as an improved US jobs report left investors looking at other markets. More jobs were added to the US economy in December and the US labour market remains in a good position although this was not enough to sway the Greenback in the opposite direction.

Thursday 5th January

Ongoing concerns around the UK economy left the Pound in a weak position. The final services PMI came in lower than expected and that meant that the UK’s crucial services sector continued to contract during December.

It was a different story for the Euro as it made ground against a number of riskier peers following a downturn in market mood. However, it did struggle against a number of stronger rivals as a result of its negative correlation with the US Dollar.

The US Dollar pushed upwards following a boost from promising jobs data which means that interest rates are likely to be raised by the Federal Reserve. Employment figures came in at 235,000 which was higher than the expected 150,000, helping to give the safe–haven currency a boost.

Wednesday 4th January

It was a mixed day for the Pound as it improved against a number of safer peers but struggled elsewhere as a result of a risk-on market mood. Any potential gains were capped by a worsening of the cost-of-living crisis with credit card borrowing rising in November, indicating that households are struggling.

The Euro fell despite the final services PMI coming in higher than initially expected. This downside was also down to an upbeat market mood as well as a potential drop in interest rate rise expectations.

As a result of a positive market mood and a drop in US Treasury bond yields, the US Dollar fell. US manufacturing activity also contracted and this added to the Greenback’s losses.

Tuesday 3rd January

The Pound made ground against weaker rivals although it failed to make gains against safer options. The UK economy is facing a bleak future as economists hinted that they expect the recession in the UK to be the longest of all G7 nations.

As inflation fell for the second month in a row in Germany, the Euro lost ground. This left investors preparing for additional action by the European Central Bank.

A mixed market mood meant that the US Dollar experienced a mixed day of trading. Following the sell-off last year, markets were looking for technical repositioning and so, any additional gains were capped.

Monday 2nd January

As 2023 begins, the future is looking worrying for the UK economy. Investors will shift their focus to the depth of the recession and the ongoing tightening cycle that is being implemented by the Bank of England.

The war in Ukraine and the action that the European Central Bank will take on interest rates are going to have an impact on the Euro. This could mean that the single currency experiences some volatility at the beginning of the year.

A possible global recession could see demand rise for the US Dollar, helping to push it upwards, especially if the US economy is not hit as hard as other countries. Furthermore, the monetary policy from the Federal Reserve could also help to boost the Greenback.

Currency Ranges for the week:

GBP/USD: Low: 1.18501 High: 1.20974

GBP/EUR: Low: 1.12784  High: 1.13827

EUR/USD: Low:1.04886  High:1.06859

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