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23rd January - Weekly FX Update

Top Currency Pairs Monday 23rd January 04:00 UTC GBP/USD: 1.24336 (Last Week: 1.22690) EUR/USD: 1.08987 (Last Week: 1.08600) GBP/EUR: 1.14083 (Last Week: 1.12974)

Market News

Pound Sterling The Pound has rallied enthusiastically in recent trade which may now see the UK currency turn for the better. Despite this, the week ahead holds the risk of an indecisive market, potentially setting Sterling adrift within a relatively narrow range. Last week, Sterling rose against all G10 counterparts amid a reappraisal of the market outlook, most notably including the pace of inflation over 2023 and the Bank of England's likely response. Bailey remarked that the committee would be prepared to lift interest rates in line with current market expectations which would suggest it could peak at around 4.5% in 2023 if data emerging from the UK merits this response. GBP/USD has rallied close to a 6-month high with a potential break and approach towards 1.26

Euro The Euro gave up some ground against Sterling last week but held strong against the US Dollar after European bond yields rose in the wake of remarks made by Christine Lagarde, President of the ECB. All currencies are likely to be extremely sensitive to commentary surrounding central bank rates, with any divergence between market expectations and views of central bankers expected to cause significant movements. This week there are a number of ECB Governing Council members scheduled to speak, followed closely by flash estimates of January's PMI's on Tuesday, and Germany's IFO survey on Wednesday. Risk is tilted towards stronger PMI readings than expected due to energy prices continuing to pull back. There is definitely uncertainty over whether GBP/EUR could be expected to benefit should PMI surveys offer further signs of stabilisation.

U.S. Dollar Dollars were sold widely last week and may be set to give up further ground to other G10 currencies. Looking ahead, Thursday's release of GDP data for Q4 could be pivotal in fending off further advancements from Sterling. Any number that is in line with expectations should also have positive implications for other economies around the world. The report is expected to reveal solid growth in the US. Friday will also see the release of core PCE Price Index, a measure of inflation keenly looked at by the Federal Reserve. Should this release differ with consumer price index figures (indicating inflation may be retreating), it would pose an upside risk to US bond yields and the currency markets.

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


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