The Pound was mixed this week amid some market volatility, although renewed Brexit concerns kept a firm lid on the UK currency.
Meanwhile, the Euro stumbled as tensions between Russia and the EU escalated.
Pound (GBP) Undermined by Brexit Worries
The Pound wobbled through the first part of the week as persistent fears over the UK’s bleak economic outlook were offset by a generally upbeat European market mood.
As the week went on, the market mood soured, causing Sterling to slip against safer currencies but rise against its riskier peers. However, GBP’s mixed gains were severely capped as the Northern Ireland protocol dispute entered the spotlight once again, with the UK saying it could scrap the agreement.
Next week may bring more headwinds. UK inflation is forecast to jump from 7% to 9.1%, which may exacerbate fears over the country’s cost-of-living crisis.
Euro Slips as Russia-EU Tensions Rise
The Euro traded sideways through the first half of the week as Russia-Ukraine fears offset expectations of a more hawkish stance from the European Central Bank (ECB).
EUR then tumbled as tensions between Russia and the EU flared. After Finland announced intentions to join Nato, the Kremlin warned that it would retaliate. The threat of an escalation spooked EUR investors, as further EU-Russia hostility could hurt the Eurozone economy.
While there are some potentially high-impact Eurozone data releases next week, news around the Ukraine crisis may drive EUR exchange rates. Could tensions escalate further, dragging the Euro down?
US Dollar Rises on Rate Hike Bets and Risk-Off Mood
The US Dollar fluctuated early last week as a shifting market mood caused some turbulence for the safe-haven currency.
A stronger-than-expected US CPI then boosted Federal Reserve rate hike bets, lifting USD. In addition, global recession fears and worries over the Ukraine crisis swept markets, triggering a flight to safety that benefitted the ‘Greenback’.
Next week, US retail sales are in focus. Economists expect another month of strong sales growth, which could lift USD even higher.
Australian Dollar Down as Sentiment Sours
The Australian Dollar slipped this week as risk appetite drained away from markets.
Over the course of the week, worries that the global economy is slowing have sapped investors’ appetite for risk. Some major economies, including the UK’s, look set for recession. Meanwhile, the Russia-Ukraine conflict could escalate. As a result, the risk-sensitive ‘Aussie’ slid.
Next week, the Reserve Bank of Australia’s (RBA) meeting minutes from its May decision may trigger some movement. Earlier this month the RBA raised rates by more than forecast. Hints of further tightening could boost AUD.