Pound Sterling

Pound Rocked by Mixed Data, US Dollar Bolstered by Surging US Treasury Yields

The pound traded in a wide range this week as some mixed UK economic data infused volatility into the currency.

At the same time, the US Dollar drew support this week from a sharp uptick in US Treasury yields in addition to market jitters.

Pound Fluctuates on Mixed Data Releases

GBP/EUR – Unchanged on the week’s opening levels

GBP/USD – Down one cent on the week’s opening levels

The Pound stumbled through the first half of this week, with the currency being undermined by cost-of-living concerns as data showed wage growth continued to slip further behind inflation.

Sterling then rallied sharply following the announcement most remaining Covid restrictions in England would be lifted from next week, before an abysmal retail sales saw the Pound part with the majority of its gains.

Looking ahead, the publication of the UK’s latest PMI figures could provide some support to the Pound next week, if they show activity in the private sector rebounded this month after an Omicron induced slowdown in December.

Euro Stumbles amid EU-Russia Tensions

EUR/GBP – Unchanged on the week’s opening levels

EUR/USD – Down one cent on the week’s opening levels

The Euro tracked lower this week, with the single currency initially coming under pressure due to its strong negative correlation with the US Dollar.

This downtrend was then maintained in the latter half of the week amidst growing tensions between the EU and Russia over Ukraine.

Turning to next week, the publication of the Eurozone’s latest PMI figures will likely act as a key catalyst for EUR exchange rates. Expect the Euro to weaken if Europe’s current Covid wave suppresses economic activity in the bloc this month.

US Dollar Buoyed by Rising US Treasury Yields

USD/GBP – Unchanged on the week’s opening levels

USD/EUR – Up one cent on the week’s opening levels

The US Dollar struck higher this week, with the ‘Greenback’ rising in tandem with US Treasury yields, which climbed to a two-high at the start of the session.

While a subsequent drop in yields capped the US Dollar’s gains, geopolitical uncertainty helped prevent any meaningful pullback in the safe-haven currency.

Centre stage next week will no doubt be the Federal Reserve’s first policy meeting of 2022. No policy changes are expected this month, but a hawkish outlook from Fed Chair Jerome Powell could reinforce expectations for multiple rate hikes from the US central bank this year, bolstering the US Dollar in the process.

Australian Dollar Underpinned by Stellar Jobs Report

AUD/GBP – Up one pence on the week’s opening levels

AUD/USD – Unchanged on the week’s opening levels

The Australian Dollar traded in a wide range this week, with the risk-sensitive currency facing some headwinds throughout the session as a result of mixed market sentiment.

However the ‘Aussie’ was able to avoid any notable losses, thanks to a stronger-than-expected domestic jobs report, which reported Australia’s unemployment rate fell to a 13-year low in December.

In the spotlight for AUD investors next week will likely be the publication of Australia’s latest CPI reading. Will surging inflation in the last quarter of 2021 bolster expectations for the Reserve Bank of Australia to hike interest rates before 2023?

Key Data

Jan 23 AUD Services PMI (Jan)

Jan 24 EUR Manufacturing PMI (Jan)

Jan 24 EUR Services PMI (Jan)

Jan 24 GBP Manufacturing PMI (Jan)

Jan 24 GBP Services PMI (Jan)

Jan 25 AUD Business Confidence (Dec)

Jan 25 AUD Inflation Rate (Q4)

Jan 25 EUR IFO Business Climate (Jan)

Jan 25 GBP Industrial Trends Orders (Jan)

Jan 26 USD Fed Interest Rate Decision

Jan 27 USD GDP (Q4)

Jan 27 USD Durable Goods Orders (Dec)