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14th March - Weekly FX Update

Top Currency Pairs Monday 14th March 9:00 UTC GBP/USD: 1.30473 (Last Week: 1.31694) EUR/USD: 1.09567 (Last Week: 1.08639) GBP/EUR: 1.19081 (Last Week: 1.19750)

Market News

Pound Sterling The Pound is struggling against both the Euro and Dollar as risk-averse trading continues despite ongoing talks between Russia and Ukraine. Europe also seem to be less vulnerable to the war in Ukraine than initially expected, and these ongoing discussions have allowed the Euro to regain some losses over the past week. Looking ahead, Thursday's BoE rate decision could be pivotal in the strength of the Pound in the near future. There is a modest expectation that the Bank will lift interest rates from 0.5% to 0.75%, which would mark the third successive increase since December and should encourage optimism for the Pound. However, first the Federal Open Market Committee (FOMC) will decide on their own monetary policy on Tuesday-Wednesday, after inflation in the US reached a year-on-year 7.9%, mounting pressure on the Fed to make a move. This will be a major driver of the GBP/USD exchange rate as some economists are even pricing in a move from 0.25% to 0.75%.

Euro The Euro regained some ground last week, with European currencies being purchased widely as analysts rallied with an optimistic view that talks between Russian and Ukrainian officials may create scope for an end to the invasion of Ukraine. This correction also came as Europe look increasingly less likely to come under significant pressure as first thought. Meanwhile, the ECB held interest rates at 0% last Thursday, while noting any moves they make will be gradual and take "some time". This should have faltered the Euro, however the ECB went on to announce their renewed plan to end stimulus in the third quarter if economic data is supportive, which gave the Euro another small boost heading into the weekend. This surprised economists as there is growing concern for slow economic growth and high inflation in the Eurozone economy. Aside from the Russian invasion of Ukraine, the Euro drivers this week are left to the Federal Reserve and Bank of England, who are both set to announce their respective interest rate decisions.

U.S. Dollar The Dollar has continued to appreciate over the last week despite ongoing talks between Russia and Ukraine's foreign ministers, which failed to slow risk-averse trading. US consumer prices also approached 8% last month ahead of a surge in energy prices. This has increased the pressure on the Federal Reserve to tighten monetary policy, where the Dollar could gain even further on other G10 currencies depending on the outcome of the Federal Open Market Committee (FOMC) on March 15th-16th. The expectation is that interest rates will be lifted from 0.25% to 0.5%, although some financial markets are still pricing in a larger increase to 0.75% which should benefit the Dollar.

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