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24th January - Weekly FX Update

Top Currency Pairs Monday 24th January 9:00 UTC GBP/USD: 1.35391 (Last Week: 1.36800) EUR/USD: 1.13223 (Last Week: 1.14292) GBP/EUR: 1.19579 (Last Week: 1.19694)

Market News

Pound Sterling The Pound soared above resistance last week against the Euro as inflation in the UK jumped to a near 30-year high at a level of 5.4% in the year to December, meaning inflation has been higher than estimates for the second month in a row. On Friday, these quick gains were lost after a poor retail sales report prompted a pullback to 1.1950 against the Euro, and 1.3560 against the Dollar. Looking ahead, there will be no major input from economic data this week, and focus will instead be on the British political picture, as PM Boris Johnson appears close to being forced out of his role. However, the sentiment for the Pound is certainly strong as the UK government has moved to ditch plan B restrictions and another interest rate hike is being priced in for next week.

Euro In Germany, inflation rose to 5.3% in December. This was in line with economists forecasts, however, with escalating tensions between Ukraine and Russia, this data was certainly on the backburner for the Euro. As embassy staff begin to be pulled out of Kyiv and NATO have started sending in 'ships and fighter jets' to Eastern Europe, the pressure of Russia's significant military action against Ukraine continue to build. The Euro seems to be pricing in little geopolitical risk, so if the situation between the two nations continues to flare up, we will see some downside risk to the Euro. The Euro has quite a neutral risk profile, so by the same token, if tensions do begin to ease, it is expected the Euro will find some strength, but not much.

U.S. Dollar Current geopolitical risk between Ukraine and Russia looks set to give the Dollar a boost with its safe-haven status. Moreover, ING strategists assert that energy-related volatility would likely mean gains for the U.S. currency against the Euro, as escalation will expose Europe's dependence on Russia's energy exports. Meanwhile, the Dollar could look to give up ground against the Pound over the coming weeks if the Bank of England continue to hike interest rates before the Federal Reserve. The Fed will start a two day meeting on Tuesday which could signal the start of interest rate hikes from March, but the Bank of England are expected to hike rates again as early as next week.

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