Market Update 14th February – 18th February

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

GBP

Last week was a mixed bag of results for Sterling. Whilst it stagnated against the Dollar and finished the week where it started, it made over 1% gain against the Euro after taking a hit only weeks before. However, whether these gains will be sustained through this week is another question as developments surrounding Ukraine and a flurry of economic data will be revealed over the coming days. The focus for this week will be January’s inflation figures which are out on Wednesday morning. Currently, the market expectation is at 5.4% but if the figure is any higher it could boost Sterling back towards the 2-year highs it reached only weeks ago. On Tuesday we have ILO Unemployment rates out along with Claimant Count Change which give a good indication of the state of the UK workforce. Another factor that could influence GBP/EUR this week is the markets response to the ongoing tension within Ukraine, with both the US and UK making it clear they are ‘ready to respond decisively’. Any developments could cause Sterling strength against Euro, potentially due to the closer Proximity of the Eurozone to any conflict.

EUR

Europe’s single currency sustained some of the heaviest losses amongst all the major currencies last week after reports in the US and International media stated that an extension of Russia’s 2014 military incursion into Ukraine could begin from mid-week. To put it simply, markets are reacting to the geopolitical risks posed by Russian military action against Ukraine. Even though it is currently just speculation, the alleged threats have strengthened the Dollar whilst weighing heavily on the Euro. This comes ahead of the hawkish stance from the ECB the previous week, which saw Euro strengthen greatly as Christine Lagarde didn’t rule out rate hikes in 2022. It is now market expectation that the ECB could hike the interest rates before the end of 2022, but it is not clear when or by how much. Although, this strength on EUR/USD has since been halted by even higher inflation in the US. With regards to key points this week, Christine Lagarde speaks today, and the market will keep a close eye on any indications surrounding rate hikes. We also have GDP figures coming out on Tuesday which will give an indication of the state of the economy across the Eurozone. The rest of the week is relatively quiet and so the headlines surrounding Ukraine will inevitably take the lead if any further military action occurs.

USD

The Dollar has continued to gain against both Sterling and Euro as we enter the 3rd week of February as an increasingly hawkish Federal Reserve policy outlook could likely prove positive for the currency. With troubles in Ukraine dominating the headlines, the world looks to the US to take the lead on any defence against Russia. In times of crisis the Dollar usually prevails as it is seen as the most stable currency, and this could give some explanation as to why it has strengthened. The EUR/USD rate hit a 4-month high last Wednesday but has since crashed back down due to the ongoing European crisis. Furthermore, James Bullard (Fed member) suggested last week that the Fed should consider lifting their interest rates by 50bps in March following 4-decade high inflation data in January. Inflation data has came in higher than expected for 2 months running which puts further pressure on the central bank to raise rates and tackle the issue. With regards to US data, we look ahead to Wednesday for Retail Sales figures which usually give a good indication of consumer spending. Generally speaking, a higher reading is seen as positive for the Dollar. Otherwise, the week will be dominated by headlines surrounding Ukraine.