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9th May - Weekly FX Update

Updated: May 16, 2022

Top Currency Pairs Monday 9th May 9:00 UTC GBP/USD: 1.22743 (Last Week: 1.25390) EUR/USD: 1.05085 (Last Week: 1.05020) GBP/EUR: 1.16804 (Last Week: 1.19395)

Market News

Pound Sterling Last week, the Pound slid even further against other G10 currencies as the Bank of England (BoE) shocked markets with a long-term recession warning. After raising interest rates to 1%, as widely forecast, the BoE issued dire warnings of a recession towards the end of the year, slashing 2023 growth forecasts and predicting inflation to be at 10.25% for 2022 Q4. Andrew Bailey recognised the hardship this will cause for many people in the UK, as a projected 1.75% fall in disposable income for 2022 would make it the largest contraction in more than 50 years. This meeting left the Pound crashing through support levels and may head lower in the weeks ahead should other central banks' decisions and economic data support their respective currencies.

Euro For the Euro, all eyes were on other central bank meetings last week, which saw the European currency profit very nicely against the Pound as the UK economy heads for a recession. Meanwhile, Eurozone economies felt the heat from Russia, as German retail sales fell after price increases from the war in Ukraine. Forecasts predicted an increase of 0.3%, so a decrease of 0.1% fell quite short. German exports also struggled and manufacturing was mixed among European countries. Despite the worrying outlook for the UK economy, the European Central Bank (ECB) may be tested with incoming data including German inflation on Thursday, which although forecast to rise by 0.1%, could be tested by the current geopolitical stress. President of the ECB, Christine Lagarde, said last week there may be potential to raise interest rates in Summer, but they are afraid to hike rates due to their huge bond holdings where purchases will likely be phased out by July.

U.S. Dollar Last week saw a brief fall for the Dollar after the Federal Open Market Committee (FOMC) meeting on Wednesday. The central bank's FOMC voted to lift interest rates by 0.5pc points, marking the biggest rate increase in over 20 years. Further hikes are certainly expected in 2022 after Federal Reserve Chair Jerome Powell said they are moving "expeditiously" to bring inflation down which is causing hardship to the US population. Since this was already heavily priced into the markets, there was a quick correction that gave other G10 currencies some footing. Against the Pound, however, an unexpected recession warning from the Bank of England (BoE) on Thursday plummeted the GBP/USD exchange rate to a 22-month low. This is in extremely oversold territory once again, however, there is still a risk of further slippage as geopolitical stress in China and Ukraine continues to support the greenback.

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