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4th April - Weekly FX Update

Top Currency Pairs Monday 4th April 9:00 UTC GBP/USD: 1.31158 (Last Week: 1.31557) EUR/USD: 1.10224 (Last Week: 1.09782) GBP/EUR: 1.18989 (Last Week: 1.19839)

Market News

Pound Sterling Early last week, Bank of England governor Andrew Bailey echoed that the UK economy will likely face the biggest shock in 50 years, leaving the Bank in precarious territory between controlling inflation and avoiding damage to UK growth. This weakened the Pound and sent it below 1.18 against the Euro, with Bailey hinting at a slower, more cautious path for increasing interest rates. Thankfully for the Pound, reports of de-escalation in Ukraine and higher GDP in the final months of 2021 (ONS) gave the UK currency some footing heading into the weekend. The week ahead is quiet on the economic calendar and the Pound will rely on the war in Ukraine to find support. Europe are currently under huge strain after Gazprom shut off a crucial gas supply route to Germany. It is important that the UK government are not complacent regarding the lower exposure to Russian gas that they have, and the Pound should receive some tailwind in the coming weeks.

Euro Last week saw German inflation (national consumer price index) rise 7.3% year on year, exceeding the Reuters expectations of 6.3%. This failed to take effect on the markets as shortly after, the Euro took a big hit with Putin announcing Russian gas would need to be paid for in Ruble's, a request quickly rejected by Western powers. There is now talk of further sanctions coming out of Europe following Putin signing the decree in his bid to support the Russian currency and banking system. This could place a huge strain on Europe and send inflation even further out of control, with 40% of Europe's gas imports now expected to be paid for in Rubles. Notably, Gazprom has already moved to shut off critical gas supply to Germany, prompting a looming energy crisis. The GBP/EUR exchange rate could gain from these European energy woes, and with a light economic calendar, the major headlines will be fully focused on Ukraine.

U.S. Dollar The Dollar was weakened last week by Ukraine optimism as peace talks continued. Hopes for a diplomatic solution to the war caused a rise in risk appetite, leaving the Dollar to falter early on. Despite this, a fading pandemic and soaring inflation meant workers were back in the job market, after the US economy added 431,000 jobs in March, and the unemployment rate fell to 3.6%. This slightly missed the mark on expectations but was by no means negative news. A clutch of data sets will make its way into the headlines this week, but the real focus will be on the war in Ukraine and FOMC minutes from the March meeting. The minutes will be published on Wednesday, where the Dollar will benefit from any hawkish clues about policy tightening. In regard to the Ukraine crisis, any de-escalation could result in a weakening Dollar.

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