Market Update 30th May – 3rd June

Where you will be able to keep up to date with all the latest changes in the currency market

GBP

We have seen continued GBP weakness due to the cost-of-living crisis within the UK. High levels of inflation can lead a currency to weaken, unless monetary policy is put in place to react to the rise in inflation. Last week we had Chancellor Rishi Sunak announce a £15bn emergency package to help families struggling with energy bills. He has mentioned how there will be a temporary rise in tax to cover the borrowing. when oil and gas prices return to historically more normal levels the levy will be phased out. This has an anti-business sentiment and could weaken the Pound in the long run. Investors may have to hold off on their expectations of an interest rate hike following data coming out this month that showed a sharp slowdown in British business. If the rates aren’t hiked later in the year then we could see this discourage people from borrowing from the banks and encourage saving. Higher Interest rates will strengthen the pound. Wednesday we have PMI figures being released, if the readings come out higher than expected then this could strengthen the Pound yet if the figures are released lower than expected this could weaken the Pound.

EUR

Last week we saw the Euro to strengthen to a two-week low against the Pound. This is partly due to the ongoing conflict within Russia. There has been an interview with Foreign Minister Sergei Lavrov where he has said the “liberation” of eastern Ukraine’s Donbas region is an “unconditional priority”. This could potentially influence Russia to reduce fighting in other regions of Ukraine. The conflict has weakened the Euro throughout this year, as resources have been stretched and war on the European continent comes with a level of risk.  This week, we have unemployment figures coming out by the Eurostat this Wednesday where this will be a good indicator to see how much of Europe is currently unemployed. If the figures come out lower than expected then this will weaken the Euro, however if the figures come out higher than expected then this will strengthen the Euro.

USD

The GBP/USD rate has touched a three-week high and has rose over 3% in this timespan. This is partly due to the comments made by the Foreign Minister Sergei Lavrov about the liberation of the Ukraine’s Donbas region. Investors are becoming less risk adverse just due to this news that has come out. The Dollar is seen as a safe-haven currency so in times of crisis people invest their money into the Dollar. We have non-farm payroll coming out this Friday which will be a good indication to the state of employment within the US. If the figures come out higher than expected then this means more people are working which will boost the economy and strengthen the dollar, yet if the figures come out lower than expected then this will weaken the dollar.