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15th August - Weekly FX Update

Top Currency Pairs

Monday 15th August 03:00 UTC

GBP/USD: 1.21193 (Last Week: 1.20764)

EUR/USD: 1.02539 (Last Week: 1.01809)

GBP/EUR: 1.18213 (Last Week: 1.18591)


Market News

Pound Sterling

The Pound made some early gains last week as US inflation came in below expectations, causing markets to rethink their bets on the next Federal Reserve policy meeting. On Friday, ONS statistics revealed UK GDP contracted 0.6% in June, the most significant drop in 17 months. The news prompted a short sell off of the Pound, although losses were not drastic as forecasts were for the economy to shrink more than it actually did. Looking ahead, Wednesdays CPI reading is the most important piece of economic data for the week. Prices rose 9.4% in the 12 months to June, and for July, forecasts are eerily close to the double digits mark, a scary prospect for the UK economy. Politically, the race for Prime Minister is heating up, which will certainly drive sentiment over the coming weeks. The next PM will be announced on the 5th September, and Liz Truss is currently in pole position.


Euro

The Eurozone was quiet last week, with no significant data releases meaning the Euro was very reliant upon external developments. Against GBP, the EUR has made steady gains after the retreat from the 1.20 benchmark a few weeks back. When looking at the EUR/USD exchange rate, it reached fresh monthly highs following the US inflation print, breaking 1.03 for the first time since early July. The European manufacturing industry is still in crisis mode with the ongoing drought, heavily affecting shipping routes adding to supply chain issues. Upcoming data next week will be watched closely by investors to see any indications of inflation, and whether or not the European Central Bank are looking at another imminent rate hike.


U.S. Dollar

The Dollar was subjected to early losses last week as a better than expected inflation report was released on Wednesday. Coming in at 8.5%, it led investors to reduce bets on the next FOMC meeting, as falling energy prices played a huge part in the decline. Following the print, President Biden said there are now signs that inflation is “beginning to moderate”, however, the Fed kept its tone that the US are far away from declaring victory. This unexpected hawkish tone from the Fed supported the Dollar, with a 50 bps hike likely at the next meeting, and more importantly, 75 bps not being ruled out. After a positive jobs report the week before last, the US is steering away from recession talks, but will be watched closely by investors in the lead up to Q4.


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Disclaimer: This is not investment advice; it is for informational purposes only.




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