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We have seen continued GBP weakness this week due to the ongoing war within Ukraine. Because of this the pound has been a riskier asset than the USD and EUR which has lead the Pound to weaken, most significantly against the USD we have been looking at some of the lowest rates we have seen since the start of the pandemic but as of this week we are starting to see it plateau. With no real sign as to when the war in Ukraine will end we could expect to see huge volatility with the Pound moving forward. We have Bank of England Interest rate decision Monday which could also massively affect the strength of GBP. Expectations are that interest rates will rise to 1% to combat inflation, but downturns around the world may indicate to the Bank of England that more stimulus is needed in the economy. We also have local elections on Thursday which could see a big movement from Conservatives to Labour and the Liberal Democrats in part due to the Partygate scandal from the pandemic. Any large swings could create pressure for the Prime Minister and create government instability.
We have seen more EUR weakness since the Macron winning the election, this is because whenever there is any political uncertainty within a European country we can see the currency weaken massively. We have also seen further weakness due to threats of Putin cutting off gas supply to Europe. Towards the bank end of April, we were looking at a near 5-year low against the US Dollar. As we have come into May we’ve started to see a little bit of Euro recovery but with unemployment rates out today from the ECB, we could see the swings either way. If rates are lower than expected then this shows a stronger economy and then we could expect to see Euro strength, however if the figures are higher than expected then this will show a weaker economy and then we could expect to see the Euro weaken.
We have seen the Dollar strengthen massively over the last few weeks mostly because of the war in Ukraine and we’ve been looking at the lowest rate against the Pound we have seen since November 2020. This is because in times of crisis the dollar is seen as a safe-haven currency, over the coming weeks we could expect to see further dollar strength due to Putin’s threats to cut off gas supplies within Europe which could imply there is no end to this war insight. This Wednesday we have interest rate decisions coming out from the Federal Reserve, this will be a good insight into the state of the US economy and however the decision comes out we could expect to see swings either way.
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