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8th August - Weekly FX Update

Top Currency Pairs Monday 8th August 03:00 UTC GBP/USD: 1.20764 (Last Week: 1.21818) EUR/USD: 1.01809 (Last Week: 1.02250) GBP/EUR: 1.18591 (Last Week: 1.19137)

Market News

Pound Sterling The Bank of England made the decision last week to raise interest rates by 0.5 bps at the latest monetary policy meeting. In a battle to halt inflation, this large rise heaped pressure onto companies and households with its largest hike in close to 30 years. After the US recently entered a "technical recession" the Bank of England went on to offer an ominous warning for the UK economy, quickly reversing the Pound's recent gains against other G10 currencies. The recession will likely last until the end of 2023, marking what may be the most prolonged downturn since 2008. Despite the initial negative effect this has had on the Pound, economists understand that both the US and Europe are in very similar positions.

Euro The Euro continues to be under pressure as energy woes and hawkish rival central banks are restraining the Euro's potential. More recently, another issue the Eurozone is now facing is falling water levels on the river Rhine. The Rhine is the key transport artery for the German economy, and is now coming close to being impassable for a number of key commodities which would heavily effect trade and growth. Key sources claim the river is just a few centimetres away from being unusable. Markets will keep a close eye on this development over the coming week after it certainly halted the Euro's potential gains on the Pound after the Bank of England announcement last week.

U.S. Dollar The US economy added 528K jobs during July, which came in at more than double the predicted figure of 250K. This aided a rebound in the Dollar which was also nicely supported by recession fears out of the UK. These jobs figures pushed the unemployment rate down to 3.5% which has justified ambiguous claims that despite a "technical recession", the economy is in reality not yet in that position despite printing two negative quarters of growth. Janet Yellen reiterated this recently, stating you cannot add that many jobs in a single month during a recession. This will likely shore up expectations for the Fed to continue its policy of aggressive hikes, which in turn will be very supportive of the Dollar. If the market switches its stance again on the US economy, its appreciation potential will be capped.

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