Weekly Report – 9th January – 13th January 2023

Friday 13th January -The Pound experienced an upward trend on Friday after the UK’s GDP report exceeded expectations. The economy showed growth of 0.1% in November, instead of the predicted contraction of 0.2%. This has led to speculation that the country’s recession may not be as severe as previously thought, boosting the value of GBP.

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The Euro faced a setback at the end of last week, despite positive economic data from the Eurozone, as traders sought to profit from EUR’s strong performance earlier in the week. However, the currency was able to recover against some of its peers later on, as the decline in the US Dollar lifted EUR, due to the currencies’ inverse relationship.

The USD initially strengthened on Friday due to an increase in Treasury bond yields and a negative market sentiment, but weakened in the afternoon despite an improvement in the University of Michigan consumer sentiment indicator, as market sentiment improved.

Thursday 12th January

The Pound saw a decline yesterday as investors reduced their expectations for interest rate increases by the Bank of England (BoE). Factors contributing to this include a decrease in US inflation and predictions that British energy bills will decrease this year, indicating a potential decrease in UK inflation pressures.

On the other hand, the Euro gained strength yesterday due to continued expectations for aggressive interest rate increases from the European Central Bank (ECB). The ECB’s commitment to these raises contrasts with the predicted slowing or pausing of tightening cycles by the Federal Reserve and the BoE.

The US Dollar experienced a drop yesterday following the release of the latest American Consumer Price Index (CPI), which showed a significant slowdown in December. The annual inflation rate dropped from 7.1% to 6.5%, the lowest since October 2021. This caused a decrease in USD value, as well as a scaling back of bets for further aggressive interest rate increases from the Federal Reserve.

Wednesday 11th January

On Wednesday, the Pound experienced a decline in value compared to many other currencies. The reason for this decline was due to the ongoing strike action throughout the United Kingdom. Health worker unions have escalated their dispute with the government by refusing to provide evidence to the National Health Service (NHS) pay review body. As the conflicts between the government and unions continue to worsen, it is expected to have a negative impact on the British economy.

In contrast, the Euro gained strength on Wednesday. This was due to comments from two policymakers of the European Central Bank (ECB) that were perceived as hawkish. Furthermore, Olli Rehn stated that “policy rates will still have to rise significantly.” The growing number of hawkish voices at the ECB this week has led to increased speculation and investment in the Euro.

The US Dollar was relatively unchanged on Wednesday, as market sentiment was mixed. This caused the safe-haven currency to remain in a narrow range. Additionally, investors appeared to be cautious in making any bold moves before the release of the Consumer Price Index (CPI) reading, which has the potential to cause significant market fluctuations.

Tuesday 10th January

The Pound saw a drop in value due to concerns from business leaders about the reduction of energy support by the government set to take place in April. The ongoing dispute between public sector unions and the government also contributed to worries about the state of the UK economy.

It was a different day for the Euro which had some success during Tuesday’s trading. Isabel Schnabel, a member of the European Central Bank (ECB), stated that more interest rate increases are necessary, which led to increased anticipation of further action. However, the situation in Ukraine and the possibility of further escalation limited the EUR’s potential gains.

The US Dollar remained relatively stable on Tuesday, with minimal gains against other currencies. A cautious market sentiment and an increase in US Treasury yields provided some support for the safe-haven currency. However, the speech from Federal Reserve Chair Jerome Powell dampened expectations for the USD as he provided no indication about future monetary policy decisions.

Monday 9th January

The Pound had a difficult time gaining a clear direction due to a lack of significant data from the UK. However, it did manage to make some gains against other weaker currencies. This may have been due to the expectation that the Bank of England (BoE) will increase interest rates at its next meeting.

The Euro gained strength on Tuesday due to the Eurozone’s unemployment rate remaining at a record low of 6.5% in November. This indicates that the Eurozone’s labour market is continuing to be resilient despite other economic challenges.

As for the US Dollar, it faced headwinds on Monday due to an overall positive market sentiment. Additionally, a decline in US Treasury bond yields and the expectation that the Federal Reserve may choose to implement smaller interest rate increases in the future also contributed to the USD’s decline.

Currency Ranges for the week:

GBP/USD: Low: 1.2102 High: 1.22417

GBP/EUR: Low: 1.12402  High: 1.13662

EUR/USD: Low:1.0684  High:1.08649

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