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16th May - Weekly FX Update

Top Currency Pairs Monday 16th May 9:00 UTC GBP/USD: 1.22315 (Last Week: 1.22743) EUR/USD: 1.04329 (Last Week: 1.05085) GBP/EUR: 1.17240 (Last Week: 1.16804)

Market News

Pound Sterling The Pound has been hit hard in recent weeks as risk appetite has soured around the globe, worsened by rate hike momentum moving away from the Bank of England, this left the UK currency to seriously underperform against both the Euro and US Dollar. Further risks are now arising from a potential EU-UK flare-up over the Northern Ireland protocol, which would take the UK a step closer to a trade war with the EU, adding another level of political tension that will weigh on the markets by the potential for reaction. In the week ahead, the UK economy dominates data, with employment and inflation figures set to be released. There should be an improvement on last month's jobs, and the Pound could get a boost if inflation cools from last month's 7%.

Euro Inflationary pressures are not solely a UK problem, and last week's data out of the EU showed just that. Inflation in Ireland was near 7%, with Europe's largest economy, Germany, posting a 0.1% jump to a record high of 7.4% in March. The German statistics office claimed this was due to energy prices, but there was considerable pressure from food prices, where the impact of the war in Ukraine is becoming much more visible. Christine Lagarde confirmed talks over a summer rate hike, once the stimulus program comes to an end in July/August. The Euro reached a 5-year low last week against the US Dollar, which has led European Central Bank members to argue for more rate hikes to boost the Euro's value, as a weak Euro would go against their price stability objective.

U.S. Dollar The Dollar extended its dominance last week, but the markets could see a corrective rebound should the easing of coronavirus-related restrictions take place in Shanghai. Chinese authorities announced at the weekend that Shanghai would begin a phased reopening of its most extreme restrictions, which would as a headwind for the safe-haven US Dollar after it has recently benefitted from the deteriorating global economic outlook. Federal Reserve Chair Jerome Powell is also scheduled to speak on inflation in New York on Tuesday, which will likely be scrutinised closely by the market.

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