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31st January - Weekly FX Update

Top Currency Pairs Monday 31st January 9:00 UTC GBP/USD: 1.34364 (Last Week: 1.35391) EUR/USD: 1.11720 (Last Week: 1.13223) GBP/EUR: 1.20269 (Last Week: 1.19579)

Market News

Pound Sterling On Thursday, the Bank of England is set to make its interest rate announcement, with financial markets suggesting a 90% probability of a 25bps rate hike to 0.5%. This comes as a result of ongoing rampant inflation, which has been driven by oil and gas prices and continued labour shortages. The 0.5% level is very important for the BoE, as it was mentioned that quantitative tightening would start once the level had been reached. This would also mark the first back-to-back rate hike since 2004. Bank of England hawkishness could provide upside movement against the Euro, and a break higher could see the GBP/EUR exchange rate push on and consolidate beyond the 1.20 mark. Today, it is expected that the long-awaited report by Sue Gray into lockdown parties will be made public.

Euro Right now, it is quite difficult to see any signs of strength for the Euro. The European Central Bank continues to maintain its dovish stance on rate hikes, while the BoE and Fed have both opted for a more aggressive approach to tackle inflation. The ECB are set to meet on Thursday, but no change in policy is expected as ECB chief Lagarde seems in no rush to control rising prices yet. Meanwhile, the EUR/USD exchange rate continues to fall and has reached yearly lows, and the ongoing standoff between Russia and Ukraine will not help the Euro moving forward if tensions increase.

U.S. Dollar After the conclusion of the Federal Reserve's two-day meeting last week, Jerome Powell surprised market participants by indicating the Fed were prepared to hike rates more aggressively in March to tame red-hot inflation. He claimed that the economy was more robust, and inflation was running further away than expected, stating that there is "quite a bit of room to raise interest rates". Speaking to reporters, an initial 50bp hike was not ruled out, along with the potential to raise interest rates more than four times in 2022. Despite the Dollar's performance last week, it lost a bit of momentum in early trading this morning with a small price correction.

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