Pound, Dollar & Euro news this week
The Pound started last week falling against both the Euro and Dollar but rallied towards the end of last week, will this continue ?
Dollar strengthened against the Pound to start last week after hawkish comments from the federal reserve (FED) chair Jerome Powell.
On Tuesday the 7th of March Powell stated, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated”.
This aggressive tone on interest rates caused the Dollar to strengthen against the pound as odds of a 50-basis point hike increased.
However, on Wednesday the 8th of March Powell made it clear the decision on interest rates has not been made stating “If – and I stress that no decision has been made on this – but if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes”.
Here Powell put the onus back on the data.
This small backtrack from Powell and details of the Non-farm payrolls report on Friday that showed unemployment rate and wage growth were below expectations, caused the Pound to rally against the Dollar, amidst the market shifting to forecasting a 25 basis point rise instead of the 50 basis point rise forecasted earlier in the week.
This led to the Pound finishing at 1.2029 against the Dollar after falling to 1.1814 earlier in the week.
The consumer price index (CPI) excluding food and energy is being released for the US on Tuesday, this will give an indication of inflation in the US and give further indication of how aggressive the interest rate hike from the FED will be.
As if inflation is on the up then we could see a higher basis point hike from the FED, whereas if it’s on the decline then we could see a lower basis point hike.
On top of this retail sales for the US come out on Wednesday which is a key indicator of consumer spending and gives further indication into the strength US economy and how aggressive the FED can be with interest rates.
It was a similar story for the Pound against the Euro as the pound fell to start the week hitting lows of 1.1208.
However, the Pound started to rally last Thursday after missile strikes in Ukraine caused further worries surrounding the Russia-Ukraine war causing Euro to weaken.
This rally continued on Friday after UK GDP data showed that the UK economy expanded by more than expected in January, rising by 0.3% compared to an expected 0.1% rise.
This increase in GDP lead to increased odds on more interest rate rises from the Bank of England (BOE).
This all led to the pound finishing the week at 1.1305 against the Euro.
Unemployment data in the shape of the Claimant count change and the ILO unemployment rate come out on Tuesday for the UK.
Furthermore, the Budget Report for the UK comes out on Wednesday. Here the chancellor will present the economic forecast for the next year with details GDP, spending and borrowing.
This data will give more indications of the strength of the UK economy and therefore, more indications how aggressive the BOE can be with interest rates.
European Central Bank to increase interest rates on Thursday
The European Central Bank (ECB) will make their interest rate decision on Thursday.
With this rate hike all but locked in at 50 basis points, the tone, and indications of the interest rate decision in April will be what draws the markets attention.
This coupled with the Core Harmonized Index of Consumer prices on Friday for the Eurozone which is a key measure of inflation will give an indication of how aggressive the ECB will be with interest rates in the future.
In the week ahead data comes out for the US, Eurozone and US that gives indications on the strength of each economy and how aggressive each central bank will be with interest rates.
Furthermore, an interest rate decision for the ECB and the tone surrounding it will give an impression of whether this aggressive approach from the ECB will continue and for how long.
Will the Pound continue to rally against the Dollar and the Euro, or will we see its gains eroded amidst fresh data and an aggressive tone from members of both the FED and ECB ?
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Tom Holian [email protected]
