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21st March - Weekly FX Update

Top Currency Pairs Monday 21st March 9:00 UTC GBP/USD: 1.31513 (Last Week: 1.30473) EUR/USD: 1.10556 (Last Week: 1.09567) GBP/EUR: 1.18956 (Last Week: 1.19081)

Market News

Pound Sterling Last week, the Bank of England raised interest rates to 0.75%, which for the first time since 1997 marks the third successive interest rate hike at each of the last three meetings. The MPC voted 8-1 in favour, but with inflation expected to hit 8% in Q2, investors were left unsatisfied with the interest rate decision, as the BoE's accompanying statement detailed 'modest' tightening ahead. This left the Pound to immediately lose ground on other G10 currencies, making a desperate attempt to regain its losses on Friday before the market closed. Looking ahead, UK inflation numbers released on Wednesday will be the key event for the Pound, with figures already at a 30 year high of 5.5%. Higher than expected inflation could reverse the BoE's stance of 'modest' tightening which should benefit the Pound, but either way the UK currency has held up well in light of recent events.

Euro The European economy seems like it is beginning to feel the effects of the Ukraine war. In Germany, Porsche halted production of the 'Taycan' variants due to lack of parts availability that are usually supplied by Western Ukrainian factories, with many other companies in a host of sectors feeling the pinch. Goldman Sachs are now predicting inflation will reach 8% in the Eurozone. Christine Lagarde stated Europeans will face high inflation and slow economic growth in the near future, and that rising energy prices will be the longest high in the bloc. The Euro gained some ground over the Pound on the back of monetary policy outlook from the BoE last week, but there is significant risk on both sides, with uncertainty on where the exchange rate may move until the negotiations between Ukraine and Russia becomes clearer.

U.S. Dollar The Pound made an attempt at rebounding a 16-month low against the US Dollar last week, briefly clearing the 1.32 benchmark on Thursday before the Bank of England announcement, but since regaining some momentum. Both the Federal Reserve and BoE raised interest rates by 25bps in an attempt to slow surging inflation, and matched each other with dovish stances which first propelled the GBP forward on Wednesday, and then the USD on Thursday. Many investors were disappointed with the Fed and its lack of hawkishness which could have very well added to the Dollars recent tailwind. Looking ahead, Fed speeches will be in focus for the Dollar which will outline guidance on policy outlook with Fed Chair Jerome Powell topping the bill on Wednesday. In regard to the GBP/USD exchange rate, UK inflation data released on Wednesday will be a notable driver.

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


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