Euro (EUR) Exchange Rates Fall as Data Disappoints
EUR/GBP: Down from £0.89 to £0.88
EUR/USD: Down from $1.07 to $1.06
The Euro (EUR) trended broadly lower over the course of the week as support for the single currency was dented by retail data, industrial production and inflation.
Retail sales in the Eurozone fell by 2.7% in December – worse than the 2.5% forecast – marking the biggest decline since April 2021. The release prompted a downturn in most EUR exchange rates.
On Tuesday, a slump in Germany’s industrial production inflicted further headwinds, while strength in the US Dollar (USD) also weighed upon the negatively-correlated EUR.
Midweek, a lack of data saw the single currency trend sideways against its peers. On Thursday however, Germany’s harmonised inflation rate eased, prompting fears that the European Central Bank (ECB) may see fit to slow its pace of monetary policy tightening.
At the end of the week, tensions between Russia and Ukraine escalated as Russian missiles narrowly avoided Romanian airspace. As Romania is a NATO ally, such an eventuality could have prompted a coordinated retaliation.
Pound (GBP) Buoyed by Economic Forecasts
GBP/EUR: Unchanged at €1.12
GBP/USD: Unchanged at $1.20
The Pound (GBP) traded in a mixed range over the past week, but was supported on several occasions by economic optimism from the Bank of England (BoE) and external sources.
A hawkish speech from BoE policymaker Catherine Mann buoyed Sterling on Monday despite ongoing concerns over industrial action across multiple industries.
Subsequently, GBP dipped on Tuesday as uncertainty crept in amongst investors. Some economists voiced criticism over the central bank’s policy tightening cycle, arguing that high interest rates were damaging the economy.
Midweek, the National Institute for Economic and Social Research (NIESR) said the UK is likely to avoid a ‘technical recession’ in 2023, lending a fresh wave of support.
On Thursday, the Pound continued to strengthen as BoE Governor Andrew Bailey stressed that inflation was still a problem in the UK.
At the end of the week, GBP wavered on news from the Office for National Statistics (ONS), which revealed that the UK economy avoided a recession in Q4 – but contracted in December on a month-by-month basis.
US Dollar (USD) Fluctuates on Mixed Trading Sentiment
USD/GBP: Down from £0.83 to £0.82
USD/EUR: Unchanged at €0.93
The US Dollar wavered through the past week, intermittently bolstered and beleaguered by a shifting market mood.
Concerns over the presence of a Chinese ‘spy balloon’ in US territory drew initial support to the safe-haven ‘Greenback’ on Monday, but tailwinds were limited as the Federal Reserve’s Jerome Powell gave a dovish speech.
Avoiding any clear indicators of the central bank’s forward trajectory, Powell said simply that ‘The disinflationary process, the process of getting inflation down, has begun.’
On Wednesday, more hawkish comments from other Fed officials enabled USD to climb: Governor Lisa Cook said the bank are determined to bring inflation down to target, adding: ‘I think we are not done yet with raising interest rates.’
As US unemployment remained historically low on Thursday, USD retained some strength – although an increasingly bullish market mood capped gains.
At the end of the week, the Michigan Consumer Sentiment Index beat forecasts, further buoying the ‘Greenback’. Nevertheless, the release highlighted the struggles still faced by American consumers, tempering tailwinds.