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3rd January - Weekly FX Update

Top Currency Pairs Tuesday 3rd January 04:00 UTC GBP/USD: 1.2073 (Last Week: 1.22094) EUR/USD: 1.06709 (Last Week: 1.06081) GBP/EUR: 1.1314 (Last Week: 1.14848) Market News

Pound Sterling Looking back, 2022 was a volatile year for the Pound, with the cost of living crisis and the Russian-Ukraine war skyrocketing energy prices, leaving the UK economy in its poorest state since Covid-19. In fact, GBP/USD had its worst performance since 2016 when the general public unexpectedly voted to leave the EU, as September saw the pairing reach near parity. This was following the now infamous mini budget which cut short both Liz Truss time as Prime Minister and Kwasi Kwarteng time as Chancellor of the Exchequer. As Rishi Sunak entered his new role as Prime Minister, and Jeremy Hunt replaced Kwasi Kwarteng as Chancellor, the Pound staged a recovery with markets reacting well to what was widely regarded as a safer pair of hands at the head of the UK economy. That being said, the road ahead still looks bumpy in 2023 with news that house prices are set to slump for the fourth month in a row and could continue fall as much as 10% over the next 2 years. Keeping a handle on inflation however remains the UK's biggest challenge, with the current rate being five times higher than Bank of England's target of 2%.

Euro Despite the inevitability that the Eurozone is headed for a recession, the signs are that perhaps the oncoming recession will be less severe than previously thought. Fears over gas supply or a lack thereof over winter have eased, somewhat reversing forecasts made a few months ago predicting a steep downturn in the Eurozone economy. Eyes will be on German consumer prices data and CPI data released this week as investors try to gauge an idea on inflation and their effect since the ECB adopted an aggressive approach as part of their monetary policy on tightening. Overall, the Euro continued to trade well against the USD and the Pound respectively over the Christmas and New Year period, and much of this weeks data releases will determine if that trend continues.

U.S. Dollar The first trading week of 2023 will see a slew of data releases in the U.S, starting today as minutes from the Federal Reserves recent policy meeting are released. Today also see's the release of the job openings and labour turnover survey data and S&P Global manufacturing PMI and construction spending. Later on in the week we have data in the form of the ADP nonfarm employment and Decembers nonfarm payrolls being released. So far the Dollar has started the year well against a series of major currencies, however there have been plenty of countries observing holidays, and therefore it remains to be seen if the Dollar can continue its strong head start across the board with the outcome of this weeks data releases.

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