4th July - Weekly FX Update

Top Currency Pairs Monday 4th July 9:00 UTC GBP/USD: 1.21217 (Last Week: 1.23177) EUR/USD: 1.04374 (Last Week: 1.05845) GBP/EUR: 1.16137 (Last Week: 1.16375)

Market News

Pound Sterling The markets were extremely volatile last week, especially against the Euro, moving as high as 1.169 on Thursday and as low as 1.152 on Friday. The UK economic outlook is very poor, and many believe the UK economy and the Pound are at 'peak pessimism', which should leave the Euro and Dollar more exposed over the coming weeks with the GBP already heavily priced down in the markets. The week ahead is quiet in the UK economic calendar, with a few Bank of England (BoE) committee members scheduled to speak on Tuesday and Wednesday, including BoE Governor Andrew Bailey. Bailey also recently spoke at the ECB summit and remarked when looking at rates, all options were on the table.

Euro The Euro strengthened last week, with investors digesting inflation data that showed prices rise across the Eurozone, pushing up bets for the European Central Bank (ECB) to hike rates. Eurozone inflation came in at 8.6% year on year, up from 8.1% in May and exceeding expectations for a reading of 8.4%. Most notably, Italian and Spanish figures heaped pressure on the ECB, with a 50 bps hike in July now a possibility. The market reaction and price responses certainly suggest this is supportive of the Euro in the short term, but it could soon turn as it grinds growth lower and shifts the Eurozone economy into stagflation. Barclays economists have revised their economic forecasts and now say they expect a Eurozone recession by winter, giving the ECB a very limited window in which to raise interest rates in an effort to slow inflation.

U.S. Dollar Today is Independence Day in the US, so USD orders will settle on the 5th July. The Dollar was resurgent from the outset last week, with the GBP/USD rate, in particular, tumbling below 1.20. The Pound, however, was quick to draw a corrective bid and could attempt to further reverse the decline. This came as the US currency was dealt a setback with weak ISM manufacturing figures released Friday, which showed a big deterioration in new orders and employment sub-components, a sign that demand is falling. Core PCE Price Index, which is the Federal Reserve's (Fed) preferred measure of inflation, also stalled in June which provided further headwinds. FOMC minutes will be released on Wednesday, which will give insights into the trade-off between lowering inflation and the Fed running the risk of a recession.

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