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21st February - Weekly FX Update

Top Currency Pairs Monday 21st February 9:00 UTC GBP/USD: 1.36359 (Last Week: 1.34998) EUR/USD: 1.13600 (Last Week: 1.13113) GBP/EUR: 1.19936 (Last Week: 1.19349)

Market News

Pound Sterling The Pound was strong last week as interest rate hike expectations continue to support the UK currency. On Wednesday, inflation in Britain hit a 30-year high, with house prices at a record. According to an ONS survey, Britons are feeling the cost-of-living squeeze more than ever, with 76% of adults finding their everyday costs had increased over the last month, with food and energy the most notable differences. After raising interest rates for two straight months, financial markets are predicting a further rise to 0.75%, with some more bullish estimates pricing in a rise to 1%. This morning, Boris Johnson confirmed plans to end self-isolation for those with Covid-19, claiming while the pandemic is not over, the government is now "one step closer towards a return to normality". Investors will be keeping a close eye in seeing how these new measures play out over the coming weeks and months. Meanwhile, the PM is still under investigation for the Downing Street lockdown parties which could have headline risk as the GBP/EUR rate approaches a 12-month high.

Euro ECB President Christine Lagarde took the steam out of the Euro last week as she suggested a gradual approach to raising interest rates. Lagarde exclaimed that the ECB need to "maintain flexibility and optionality" in regards to monetary policy more than ever, and "any adjustment to our policy will be gradual", leaving the Pound to gain around 0.9% on the Euro throughout the week. Meanwhile, conflicting reports on the Ukraine-Russia crisis continued to weigh on the Euro as investors were left confused between a pullback in Russian troops and multiple false flag attacks in Eastern Ukraine. The Biden administration has asserted they will apply a "swift and firm response" on Russia should they escalate further, and financial sanctions would leave European countries and the Euro currency exposed with their reliance upon Russian gas supply and other exports.

U.S. Dollar The Dollar was steady last week as investors absorbed Federal Reserve meeting minutes from the January policy meeting released on Wednesday. This led to a reassessment on the probability of a 50 bps hike in March, as although the Fed seemed confident on tightening monetary policy, action would be taken on a meeting-by-meeting basis. With the ongoing Ukraine-Russia crisis, President Joe Biden suggested war was imminent following aggression in Eastern Ukraine, with "every indication" pointing towards a Russian invasion. Any escalation will be beneficial for the US Dollar as the safe-haven currency is poised to profit. Late Sunday, Jen Psaki announced Joe Biden has agreed "in principle" to a French-brokered summit with President Vladimir Putin, on terms that Russia does not further invade Ukraine. This would take place after February 24th.

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