US Dollar (USD) Weakens as PCE Index Drops
USD/GBP: Unchanged at £0.80
USD/EUR: Unchanged at €0.91
The US Dollar (USD) came under pressure last week as an upbeat market mood combined with indications of cooling inflation to drag investor sentiment lower.
At the beginning of the week, fluctuating US Treasury bond yields spelled intermittent gains for the ‘Greenback’, while a risk-off mood lent safe-haven tailwinds to the currency.
On Tuesday, however, better-than-expected PMI releases from Europe and the UK appeared to boost market sentiment, depressing USD. The US Dollar subsequently managed to recover some of its losses as US GDP data revealed greater growth than forecast.
Midweek and into Thursday, a recurring risk-on mood dampened support for the ‘Greenback’ and at the end of the week the currency lost further ground as the PCE price index, the Federal Reserve’s preferred measure of inflation, printed at 4.4% on an annualised basis.
Pound (GBP) Trends Down as Economic Outlook Looks Bleak
GBP/EUR: Up from €1.13 to €1.14
GBP/USD: Unchanged at $1.23
The Pound (GBP) tumbled against the majority of its peers last week as Britain’s economic outlook remained dismal. Despite some positive data, Sterling sentiment was bearish overall.
On Monday, a lack of significant economic data left the currency exposed to losses; on Tuesday, a worse-than-expected services PMI compounded headwinds. The UK’s flash release printed at 48 rather than 49.7 as forecast.
Midweek, the Pound found some strength as investors anticipated a 50bps interest rate hike from the Bank of England (BoE): UK inflation remains high, pressuring the central bank to continue tightening monetary policy.
On Thursday, GBP traded in a mixed range as economists struck a downbeat tone and at the end of the week the currency weakened further as a speech from Chancellor Jeremy Hunt left many disappointed.
Euro (EUR) Gains Capped as Russia-Ukraine Tensions Intensify
EUR/GBP: Unchanged at £0.87
EUR/USD: Unchanged at $1.08
The Euro (EUR) found some support in the first half of the week, as data from the bloc encouraged investors. However, the threat of an escalation in the Russia Ukraine conflict dampened Euro optimism on Thursday and Friday.
PMI data released on Tuesday printed mixed, but economists were encouraged by the expansion of the services sector in Germany and the Eurozone as a whole. Economist Chris Williamson commented:
‘A steadying of the eurozone economy at the start of the years adds to evidence that the region might escape recession…’
Midweek, the single currency was dented as Germany confirmed that it would send 14 Leopard 2A6 tanks to Ukraine. Subsequently, the Russian embassy in Germany accused Berlin of taking the war ‘to a new level of confrontation.’
On Thursday, Russian forces doubled down in their attack on Kyiv, the Ukrainian capital. The US followed Germany’s lead, pledging to send 31 M1 Abrams tanks to Ukraine and further angering the Kremlin.
At the end of the week, the Euro seemed oversold and was able to recoup some of its losses.