Market Update 17th January – 21st January

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

GBP

As we enter the third week of 2022, Sterling has managed to sustain the early gains it has made against both the Euro and Dollar. Within the last 30 days, GBP has advanced over 2% against EUR and over 3% against USD, making it a prime time to buy for those purchasing from overseas. The highlight of the week ahead is Wednesday’s inflation data for December, which economists are expecting to come in at 5.2%, a new decade high. If the figures were to come in any higher, it could provide further support for Sterling as the market would view February as more likely than March for the Bank of England to raise the interest rate. Although inflation data is the main focus for the Pound, ILO employment figures on Tuesday will also give a good indication into the strength of the UK economy. If the rate is up, it usually indicates a lack of expansion within the UK labour market and would therefore create Sterling weakness. Of course, amongst all this data we still have pressures on the government, in particular the Prime Minister Boris Johnson, after last week’s discovery of multiple parties during lockdown last year. Although it hasn’t majorly impacted Sterling just yet, any further disruptions and uncertainties within parliament could negatively impact investor sentiment.

EUR

The Euro weakened against the Dollar last Friday after hitting its highest level since mid-November, with higher US Treasury yields and a rebound in the dollar being the main reasons for the slip. Concerns over imminent policy tightening in the US resurfaced after several Federal Reserve officials signalled they were prepared to hike interest rates in March to combat inflation. As well as this, the December US consumer price index rose at the fastest pace since 1982. However, it came in line with expectations and has largely been priced into the markets. The European Central Bank is seen as slower than other major central banks in tightening monetary policy, after announcing in December a reduction in its pace of its asset purchases while signal in that interest rates will be kept at record-low levels for some time.  Although the economic calendar is devoid of any major appointments for the single currency this week, the market could keep a close eye on Thursday’s final estimate of inflation for the month of December after Eurostat said last month the annual rate likely reached 5% by year end. The Euro continues to stay weak against Sterling and hasn’t managed to regain much of its losses, with the EUR/GBP rate sitting at give or take a 2-year low. We may see some gains if the inflation figures on Thursday come out higher than expected. Although, any interest rate hikes from the ECB aren’t to be expected in the foreseeable future.

USD

The Dollar starts the new week with some small gains against Sterling and Euro but is still feeling the effects of last week’s record high inflation figures; the highest rate of inflation since the 80’s at over 7%. Against the Euro the Dollar lost over 1% within hours of the data being released but has since regained half of these losses at we start the new week. A lot of analysts also perceived the Dollar’s declines as likely reflecting profit-taking by speculative traders as the momentum it gained from June 2021 – January 2022 appeared to dissipate. The Chicago Futures Trading Commission data on Friday will shed some light as to what extent any speculative trading positions played on last week’s market movements. Apart from this, we have a quiet week ahead for US data releases and therefore the GBP/USD rate will move according to the flurry of UK economic figures coming out over the next 5 days. It is likely investors will be focusing on the early stages of February for the interest rate decisions and the positions at which each central bank puts themselves in as we navigate our way out of what many are calling the ‘endgame for the pandemic’.