An eventful week so far


Looking back over the course of this week, it is safe to say that this has been one of the more eventful ones for the Sterling-Dollar rate. So far, we have seen the pair plummet all the way down to its lowest levels since May 2020. This comes as a basket of economic happenings creeped their way into the market and manipulated the rate. Many of these were not good news for the Pound, with some highlighting the current struggles the UK economy face. To go into a little more detail, last week the BoE raised interest rates in the UK which did not excite the market all too much but after this they provided their forecasts on the economy to soon enter a recession. This sobering evaluation and its impacts have been felt all throughout this week, with the Pound moving very sluggishly and still in a downwards path. More recently, a data release on UK GDP failed to meet consensus, causing more alarm over a recession with many analysts predicting that one is already in motion. On the contrary, the losses were exacerbated by the Dollars colossal strength. In the US economy their inflation continues to beat consensus, and this causes investors to price in additional rate hikes, giving the Dollar a strong safety net. For the time being, it will be quite difficult for the Pound to make a reversal as the Dollar caps the majority of its gains.


The Pound was also unable to avoid losses against the Euro following the BoE’s new set of forecasts which unveiled their predictions that the UK economy will fall into a recession. This effectively pushed the rate all the way down to its lowest levels experienced so far this year as investors were keen to sell the Pound and buy into alternative currencies that were deemed more stable. To make matters worse, a UK economic think tank by the name of NIESR also published their views that the UK is on course to enter a ‘technical recession’ by year-end. More recently into this week, newly surfaced Brexit disagreements have also played a part in what levels the rate traded at. The UK Government has ‘threatened to rip up’ the Brexit trade pact for Northern Ireland. This has been met with fierce statements by the EU, threatening to halt trade agreements with the UK. This of course has acted as a headwind against the Pound, limiting a large portion of its upwards potential. In the meantime, the Pound has made an effort to recoup some its losses, but it is unclear how long this movement will be sustained for. The Euro has also facilitated these gains as it finds itself under pressure again as the war in Ukraine grinds on.

Weekly Summary Published by Frank Brightman (12/05/2022)

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