Weekly Report – 30th January – 3rd February 2023

Friday 3rd February – On Friday, the Pound’s value fluctuated as the market continued to weigh up the Bank of England’s policy stance. Investors appeared to be wary of Sterling after the BoE’s cautious guidance the previous day. Despite a better-than-expected performance from the final services index, the Pound still struggled during the trading session.

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The Euro, however, gained strength last Friday as the composite and services indexes for January were published. However, the Euro faced restrictions on its upward potential due to its negative relationship with the US Dollar.

As the US Dollar saw a huge surge, the Euro was unable to fully capitalize on the positive news. The US Dollar experienced a major boost on Friday following the release of the non-farm payroll data and ISM non-manufacturing PMI for January. The data showed an unexpected creation of 517,000 jobs in January, surpassing the forecast of 185,000. Additionally, the services sector index showed significant growth with a reading of 55.2, further fueling speculation of a Federal Reserve interest rate hike and boosting the value of the US Dollar.

Thursday 2nd February

The Pound took a hit as the Bank of England announced a cautious interest rate hike. Although the increase of 50 basis points was in line with market expectations, the accompanying statement indicated that future rate hikes may be smaller, if they occur at all.

Meanwhile, the Euro struggled, experiencing some profit-taking after reaching multi-month highs ahead of the European Central Bank’s decision. The Euro also faced challenges as investors absorbed the ECB’s forward guidance, which signalled a potential slowdown in its policy tightening pace following a 50 basis point hike in March.

On the other hand, the US Dollar strengthened yesterday, rebounding f rom its overnight losses, following the Federal Reserve’s dovish stance in its recent interest rate decision. The recovery of the US Dollar may have been aided by the unexpected decrease in jobless claims and a robust comeback in US factory orders.

Wednesday 1st February

The Pound had a modest rise against some of its less robust counterparts yesterday but failed to make substantial gains following Tuesday’s decline. The movement of the Pound was restrained by caution surrounding today’s Bank of England interest rate decision and worries about a potential wave of public sector worker strikes.

The Euro, on the other hand, strengthened on Wednesday despite a larger-than-predicted slowdown in the Eurozone consumer price index. The Euro’s growth was driven by the surprising stability of the core inflation rate at 5.2%, instead of the expected decrease to 5.1%. This demonstrates that inflation remains persistent and may prompt a more aggressive approach from the European Central Bank today.

The US Dollar, meanwhile, weakened yesterday as traders awaited the Federal Reserve’s interest rate decision. The US Dollar was also kept in a defensive position by unsatisfactory economic data. Last night, the Fed raised rates by only a quarter of a percentage point as predicted. Despite Fed Chairman Jerome Powell’s efforts to dismiss expectations of a rate cut later in the year, USD exchange rates plummeted.

Tuesday 31st January

The Pound struggled after the International Monetary Fund (IMF) predicted a recession in the UK this year and downgraded its economic forecasts. This was compounded by rising company insolvencies in the UK and an analysis suggesting that Brexit has cost the British economy £100bn per year.

The Euro lacked direction yesterday. Although the Eurozone economy surprisingly expanded in the fourth quarter of 2022, the drop in German retail sales and the Russia-Ukraine crisis put some pressure on EUR. It lost ground against riskier currencies during an improving market mood in the later session.

The US Dollar rose at the start of the European session as traders sought safety in the currency during a downbeat market mood. However, the improvement in risk appetite during US market hours weighed on USD and it couldn’t maintain its gains.

Monday 30th January

The Pound was stable on Monday, fluctuating against other currencies due to the absence of UK economic data and a cautious market atmosphere. Despite this, expectations of a 50 basis point interest rate increase from the Bank of England later in the week limited the decline of the Sterling.

The Euro saw an increase at the beginning of the week’s trading session, driven by a better-than-anticipated Eurozone economic sentiment index and anticipation of a hawkish decision from the European Central Bank. Later in the day, the Euro saw a drop in value due to concerns about the Russia-Ukraine situation and the potential for a winter recession in Germany.

Meanwhile, the US Dollar had a strong day, boosted by a negative market mood and a rise in US Treasury yields.

Currency Ranges for the week:

GBP/USD: Low: 1.2048 High: 1.23982

GBP/EUR: Low: 1.11384 High: 1.13951

EUR/USD: Low: 1.07943  High: 1.10262


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