Currency Note

Sterling hits a two-year low against euro

By Sharyh Murray-Francis February 6th, 2023

Sterling hits two-year low against euro.

Sterling begins the week weaker than both the euro and US dollar compared to this time 7 days ago. Overall, GBP/EUR is at a two-year low for the first time since its long vaccine-related boost in 2021. Against the dollar, the pound sits close to its weakest level since January 6th, as investors rushed to dollar for safe-haven buying following a better-than-expected US jobs report.

The pound fell under pressure last week for a mixture of reasons including worries over a dovish-sounding Bank of England, in comparison to the ECB and the US Federal Reserve. On Thursday, the BoE delivered its 10th consecutive interest rate hike, raising Bank Rate by 50 bps to 4%.

There are lots of key data releases market watchers will be looking out for over the course of the week. Investors will be watching closely for the latest eurozone retail sales data, Spain’s consumer confidence, Canada’s balance of trade plus several speeches from the Federal Reserve and much more. A key release on Thursday will be the UK’s latest GDP data.

We’ve just seen the latest factory orders data for Germany which revealed a 3.2% rise  month-over-month in December. This beat market forecasts of 2%, pointing to a reverse from a downwardly revised 4.4% fall in the prior month. The upturn was largely supported by rises in domestic and foreign demand.

In the US stock markets, the dollar index remains strong this morning after jumping more than 1% in the previous session. This was largely due to stronger-than-expected jobs data which suggested the Fed now has more room to hike interest rates. The US economy added some 517,000 jobs in January, the highest number since July and well above market expectations of 185,000.

The Japanese yen weakened against the US dollar this morning, hovering at its lowest levels in over three weeks. This follows reports that the Japanese government is likely to appoint Bank of Japan Deputy Governor Masayoshi Amamiya as central bank head – Amamiya is considered the most dovish among the potential candidates.

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GBP: BoE’s L. Mann to speak

At 9:40 this morning, member of the BoE’s Monetary Policy Committee, Catherine L. Mann will speak following the latest inflation rate. In its February meeting,  the BoE voted by a majority of 7-2 to raise interest rates by 50bps (to 4.0%). This was the 10th consecutive rate hike from the bank, which pushed the cost of borrowing in the UK to the highest level since late-2008. Investors will be watching closely to see whether Mann’s comments impact sterling.

GBP/USD over the past year

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EUR: EUR/USD continues to weaken

The euro is still weak against the US dollar after tumbling on Thursday for the first time since last April. This follows strong US jobs data last week which turned investors to the US dollar. Additionally, investors digested dovish signals from ECB policymakers, despite the body’s hawkish stance. 

In its last meeting, the European Central Bank hiked interest rates by 50 bps, in line with market expectations, pushing borrowing costs to the highest levels since late 2008. It also flagged one more increase of the same magnitude in March, reaffirming its commitment to tame high inflation.

USD: US dollar boosted by jobs data

The dollar begins the week stronger than a handful of its rivals including sterling, the euro and the canadian dollar following surprising jobs data last week. This week, investors will be listening keenly to Chair of the Federal Reserve, Jerome Powell, who is due to give a speech before the Economic Club of Washington on Tuesday. Powell’s speech will give clues on the Fed’s policy plans.

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