Friday 10th March – After an eventful week, the British Pound (GBP) made a strong comeback, largely thanks to better-than-anticipated UK GDP figures. The economy grew by 0.3% in January, exceeding the predicted 0.1%. This positive development not only raised hopes that the UK may avoid a recession in 2023, but also increased the likelihood of a Bank of England (BoE) interest rate hike.
While the Euro (EUR) remained stable in the morning, following unremarkable German inflation data, it experienced a surge in the afternoon. The Euro’s negative correlation with the weakening US Dollar (USD) was the primary factor behind its strengthening. The USD had fallen sharply earlier in the day when US jobs data disappointed investors. The non-farms payrolls report surpassed expectations, but an increase in the unemployment rate and a decline in monthly wage growth diminished the prospects of a Federal Reserve rate hike.
The safe-haven USD attempted to recover from its losses against weaker currencies later on. The market disruption caused by the collapse of Silicon Valley Bank made the USD an appealing investment. However, this development also diminished the chances of more aggressive rate hikes from the Fed.
Thursday 9th March
The British pound (GBP) made a strong recovery after reaching oversold conditions due to a sharp decline following Federal Reserve Chair Jerome Powell’s hawkish testimony on Tuesday. Despite negative domestic headlines and a souring market mood, the pound was able to overcome these obstacles, potentially due to expectations of more interest rate hikes from the Bank of England (BoE).
On the other hand, concerns over the Russia-Ukraine situation and mixed messages from European Central Bank (ECB) policymakers initially dampened the Euro’s (EUR) performance yesterday. However, as the session progressed, the EUR was able to rise against some of its peers, benefiting from its negative correlation to a weakening US Dollar (USD).
Meanwhile, the USD continued to weaken during yesterday’s trading session, losing its post-Powell gains as the effects of a more hawkish Fed began to fade. The “Greenback” further extended its losses in the afternoon, as initial jobless claims rose to a two-and-a-half-month high, suggesting a possible softening in the labour market. This, in turn, dampened expectations of Fed rate hikes.
Wednesday 8th March
The trading session today saw the British pound (GBP) struggle due to the scarcity of British economic data. Despite a slight increase in risk appetite, the pound faced pressure from dovish comments made by Bank of England (BoE) policymaker Swati Dhingra.
The Euro (EUR) experienced volatile trading, fluctuating after upbeat German data was offset by a downward revision to Eurozone GDP growth in the fourth quarter of 2022. However, the EUR was able to stabilise and strengthen during the afternoon, possibly due to a pullback in the US Dollar (USD), as the common currency has a negative correlation with the USD.
Despite stronger-than-expected US employment data, the USD weakened during yesterday’s trading session, as profit-taking took hold. Nevertheless, USD exchange rates remained close to multi-month highs, with markets still betting on a 50bps hike from the Federal Reserve in two weeks’ time.
Tuesday 7th March
The Pound (GBP) faced challenges due to renewed concerns about the UK’s economic outlook. The British Retail Consortium (BRC) released new sales data, indicating ongoing difficulties for UK firms, which weighed on the GBP. Moreover, in the afternoon, the possibility of higher US interest rates caused further obstacles for Sterling, leading to further declines.
In contrast, the Euro (EUR) received support in the morning after unexpectedly positive German factory order data was released. However, the USD’s strength in the afternoon put pressure on the EUR. Nonetheless, amid a negative market sentiment, the EUR was able to outperform against its riskier peers.
On the other hand, the USD surged yesterday following Federal Reserve Chair Jerome Powell’s testimony to Congress, which was more hawkish than expected. Powell hinted at a faster pace of interest rate hikes in the future, leading to an increase in market bets on a half-point hike later in the month. Consequently, the odds of a 50bps move rose to 70%, causing the USD to soar higher.
Monday 6th March
The Pound (GBP) was mixed due to a lack of significant UK economic data, which caused Sterling to trade without a clear directional bias. However, GBP managed to gain modestly against some of its weaker peers, possibly influenced by the recent agreement of a new Northern Ireland protocol deal.
In contrast, the Euro (EUR) strengthened yesterday, disregarding some underwhelming data from the Eurozone. Retail sales in the bloc only rose by 0.3% in January, lower than the expected 1% rise. However, the positive sentiment came after hawkish comments from two European Central Bank (ECB) policymakers. Chief Economist Philip Lane stated that the bank would raise rates again in May, while his colleague Robert Holzmann called for four more consecutive 50bps rate increases.
The US Dollar (USD) performed well at the beginning of yesterday’s session as the market’s pessimistic mood boosted the safe-haven currency’s appeal. Nevertheless, the USD later trimmed its gains as the market mood improved, and there was a significant reduction in US factory orders.
Currency Ranges for the week:
GBP/USD: Low: 1.18116 High: 1.21061
GBP/EUR: Low: 1.12087 High: 1.13299
EUR/USD: Low: 1.05289 High: 1.06968