Market Update 14th March – 18th March

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

GBP

Sterling lost ground against both the Dollar and Euro last week, losing over 1% against both major currencies as developments in Ukraine continued to develop. Against the Euro it has reversed much of its early-March gains after an optimistic view that talks between Ukrainian and Russian representatives would soon come to an agreement to end the invasion. The GBP/USD rate fell to new 18-month lows as investors continue to pump funds into the Dollar during the time of crisis. With regards to economic data this week, the highlight comes on Thursday’s BoE interest rate decision which could potentially encourage Pound strength if rates are raised in its third increase since December. The expectation across the market is the BoE will raise rates another 25bp from 0.5% to 0.75%. Otherwise, Tuesdays ILO Unemployment Rates are normally a leading indicator for the UK economy.

EUR

The continuing developments in Ukraine has not boded well for the Euro in general as Russia continues to tear across the country which is impacting supply chains across Europe. However, the Euro gained some strength last Thursday when the European Central Bank (ECB) brought forward to June the date at which its Asset Purchase Programme would reduce government bond purchases. They also acknowledged the interest rates could be increased in the near future which would give strength to the Single currency. However, analysts still view the Euro as vulnerable considering everything going on in Europe and it is expected to weaken over the coming weeks and months. It is also worth mentioning whether oil, gas and overall energy prices will impact the Euro as Russia provides much of this to mainland Europe and could cause huge disruption to supply chains. This week is quiet for economic data in Europe and the war, alongside both central bank meetings, will continue to dominate any market movements.

USD

As expected, the Dollar has continued to gain advantages over both the Euro and Sterling during the time of crisis. Many analysts believe the downwards trend for GBP/USD could continue throughout the week especially as we have interest rate decisions towards the latter stage. Last week we realised how profoundly the Ukrainian war is impacting investor sentiment and we can expect far more volatility this week. Thursday’s inflation data came out for the US at 7.9% for February which could push the Federal Reserve to raise interest rates further this Wednesday and does little to support the Pound-Dollar rate. It is also worth mentioning that the market has priced in for Jerome Powell to raise rates by 25bps, but it would not come as a huge surprise if the rates were raised by 50bps to an overall base rate of 0.75%. Because of this, some analysts believe that if the rates are only raised by 25bps it could cause some Dollar weakness as the markets are expecting more. Otherwise, the other key bit of economic data for the US comes on Wednesday morning as Retail Sales are released for February.