Market Update 31st January – 4th February

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

GBP

The Dollar index held above 97 last Monday after hitting an 18-month high of 97.44 in the previous session, as investors braced for upcoming interest rate hikes from the Federal Reserve. The US central Bank indicated last week that it would likely hike interest rates in March and begin reducing its balance sheet soon after to combat inflation, with markets pricing in five quarter-point rate hikes this year. As well as this, data last week showed that the US economy grew much more than expected at 6.9% in the fourth quarter. The Dollar was also lifted by investors seeking safety amid a selloff in riskier assets as global equity benchmarks head for their worst months since the start of the pandemic. Looking forward in the near term there is further anticipation for further US Dollar strength, as a focus on monetary policy suggests a period of continued volatility that can put some downward pressure on all the higher beta-currencies, which many believe that the US would be inclined to fade rallies.

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 index held above 97 last Monday after hitting an 18-month high of 97.44 in the previous session, as investors braced for upcoming interest rate hikes from the Federal Reserve. The US central Bank indicated last week that it would likely hike interest rates in March and begin reducing its balance sheet soon after to combat inflation, with markets pricing in five quarter-point rate hikes this year. As well as this, data last week showed that the US economy grew much more than expected at 6.9% in the fourth quarter. The Dollar was also lifted by investors seeking safety amid a selloff in riskier assets as global equity benchmarks head for their worst months since the start of the pandemic. Looking forward in the near term there is further anticipation for further US Dollar strength, as a focus on monetary policy suggests a period of continued volatility that can put some downward pressure on all the higher beta-currencies, which many believe that the US would be inclined to fade rallies.