Market Update 7th February – 11th February

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

GBP

Considering the Euro has been struggling over the last few weeks against the Dollar and Sterling, last week’s comments from Christine Lagarde during her press conference. Whilst on the topic of interest rates, she refused to rule out raising the rates this year in response to the ECBs “unanimous concern” regarding soaring prices across the continent. CPI figures for January came in at 5.1% which caused her to back away from previous comments where she played down raising rates in 2022. This caused investors to increase their bets that the ECB will be forced to raise their rates several times this year – a move that would follow both the Fed and BoE policies. The comments caused the Euro to jump to a two-week high against the Dollar and a six-week high against Sterling. The week ahead is quiet for Europe and so any volatility will come from other currency movements.

EUR

Although Euro fell against Sterling and Dollar last week, the mood seems to be more positive from the European Central Bank. The Federal Reserve and the Bank of England are both positioning themselves to raise interest rates imminently off the back of record high inflation figures. However, ECB President Christine Lagarde believes that inflation will subside without the need for rate hikes, as high energy prices and supply issues are putting pressure on industrial growth already. This reduces the need for hawking monetary policies and therefore might support the Euro long term. That being said, the short-term outlook for the Euro is not so positive. Investors in the market will be supporting USD and GBP as both look to raise their interest rates which is generally seen as positive for a currency. We have Market PMI Manufacturing and Services data out this morning which usually gives a good idea of how businesses are performing across the continent. However, interest rate decisions will take the headlines over the coming 10 days.

USD

The Dollar lost a lot of ground last week against both Euro and Sterling, but the losses were recovered as strong labour market data confirmed the economy was in good health at the start of the year. The market expectation was for job creation to be at 150K for January, but the real figure came in at 467K – that’s more than 3 times higher than what the market priced in despite the surge in Omicron cases. This data suggests the Omicron wave had little impact on the US economy and as we look forward it is likely the Federal Reserve will continue to proceed with their planned rate hikes throughout the year. However, this data was not enough to counter-act against the surprising ECB announcements during the latter stage of the week. This saw the Dollar lose over 1.8% against the Euro within the space of 24 hours negating any gains made at the start of the week. The only significant piece of data coming out of the US this week would be the CPI (inflation) figures on Thursday. Inflation is already at record-highs so anything above market expectations could cause the Fed to hike rates higher and sooner.