Weekly Report – 6th February – 10th February 2023

Friday 10th February – On Friday, the Pound Sterling got off to a positive start following the release of the UK’s latest GDP data, which showed that the country had escaped a recession at the end of the previous year. Despite this, the report highlighted some concerning trends such as ongoing high inflation, a rise in interest rates, and a drop in trade, which caused Sterling to falter against its stronger counterparts.

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Meanwhile, worries about the escalating conflict between Russia and Ukraine weighed on the Euro. Russia launched a barrage of missiles, with one missile almost crossing the airspace of Romania, a member of NATO. However, the Euro regained some of its losses in the afternoon, driven by hawkish comments from ECB policymaker Isabel Schnabel who expressed support for further interest rate hikes.

The US Dollar traded without a clear direction on Friday due to the shifting market mood which led to some volatility. However, USD received a boost in the afternoon as the University of Michigan reported a larger-than-expected rise in consumer morale, with the consumer sentiment score rising from 64.9 to 66.4, surpassing the forecast of 65.

Thursday 9th February

The Pound Sterling received a boost from a positive market mood. Despite mixed messages from the Bank of England, with policymakers presenting differing views during their testimony to the Treasury Committee, GBP still managed to thrive.

On Thursday, the Euro started off on a downward trend due to a surprise decrease in Germany’s harmonised inflation rate, which dampened expectations for interest rate hikes from the European Central Bank. Nevertheless, the Euro’s decline was cushioned by its inverse relationship with a weakening US Dollar.

The US Dollar, known as a safe-haven currency, experienced some selling pressure early on due to the bullish tone in the markets that diminished its appeal. However, USD was able to recover some losses later in the day as new unemployment claims remained historically low, indicating a tight labour market and boosting the likelihood of interest rate increases from the Federal Reserve.

Wednesday 8th February

The Pound Sterling saw an improvement due to a slightly rosier outlook for the UK economy, as indicated by the latest economic outlook from the National Institute for Economic and Social Research (NIESR). The institute stated that the country is likely to dodge a recession this year.

The Euro faced a lack of direction, with no significant economic data from the Eurozone. Although it managed to rise against some of its riskier counterparts as the market sentiment became more cautious, the Euro was also impacted by its negative correlation with a rebounding US Dollar.

Initially, the safe-haven US Dollar faced some selling pressure due to a risk-on mood in the market, causing it to decline against many of its peers. However, the Greenback was able to recover later in the day, fuelled by hawkish comments from two Federal Reserve officials. Both policymakers suggested that further interest rate hikes are on the horizon and that the Fed may keep rates elevated for a longer period of time.

Tuesday 7th February

The Pound Sterling faced a decline in the morning as market expectations of a slowing policy from the Bank of England (BoE) continued to impact the currency. However, the Pound managed to recover during the latter half of the session, regaining losses without a clear driving force behind the movement.

The Euro was burdened from the start of trading by poor German data, with industrial production in the country plummeting by 3.1% in December, worse than the forecasted contraction of 0.7%. This further fueled fears of a German recession, weighing on the Euro’s appeal.

Amid the general risk-averse mood in the market, the safe-haven US Dollar strengthened. This trend was briefly disrupted by an unexpected boost in US economic optimism in the afternoon, causing the “Greenback” to trim its gains as risk appetite improved. The Federal Reserve Chair, Jerome Powell, also added to this trend with a speech that was less hawkish than the USD bulls had anticipated.

Monday 6th February

The Pound (GBP) experienced a rise in value as a result of a speech delivered by Catherine Mann, a Policymaker at the Bank of England (BoE). In her speech, Mann emphasised that the headline inflation rate showed no signs of slowing down and that there was room for additional interest rate increases. This caused an increase in GBP investments and a boost for the currency.

On the other hand, the Euro (EUR) had a mixed performance due to underwhelming retail sales data from December. Despite being forecasted to decrease, the sales growth contracted by 2.7%, making it difficult for the currency to gain traction in a cautious market environment.

Meanwhile, the US Dollar (USD) strengthened as a result of a risk-averse market and increased demand for safe-haven assets. Tensions between the US and China, following the reported downing of a Chinese spy balloon, also contributed to the increased demand for the USD.

Currency Ranges for the week:

GBP/USD: Low: 1.19689 High: 1.21906

GBP/EUR: Low: 1.11847 High: 1.133

EUR/USD: Low: 1.06674  High: 1.07888


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