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USD strengthens

Daily Currency Update

UK Services PMI was released on Friday and showed that business activity declined again in January, but optimism improved as input cost inflation eased to a 17-month low. The announcement was a slight uptick from the forecast of 48.0, coming in at 48.7.

Bank of England’s (BoE) Huw Pill spoke about the latest interest rate decision at the monetary policy report briefing on Friday, stating he expects that the BoE will proceed with quantitative tightening over the coming years.

As market participants digested the central bank decisions from the US, UK and Europe on Friday, eyes were on the first key data release since the announcements. This came from the US. Strong jobs data showed that unemployment fell to 3.4% and non-farm employment change came in at 517k, the largest release since August 2022.

The news supports the Federal Reserve to continue tightening interest rates to combat inflation but has raised fears of a recession. Alongside this release US ISM Services PMI posted an expansion figure of 55.2. GBP/USD was at around 1.2250 ahead of this data but has since drifted lower.

News over the weekend has held the currency pair low as the US shot down a suspected Chinese spy balloon. China has confirmed that the balloon was used for meteorological reasons and had accidentally drifted into US airspace, but this has raised tensions between the countries and therefore weighed on market sentiment. This has seen demand for the US dollar increase as a safe haven asset, as market participants typically buy in times of uncertainty. GBP/EUR is on the rise this morning, after touching lows of 1.1140 at the end of last week.

Data is thin on the ground today, with only UK construction data and MPC member, Pill, speaking about the monetary policy report. Market participants’ eyes will turn to the week ahead for data-based currency movement with US Federal Reserve Chair, Powell, speaking tomorrow, the UK Monetary Policy Report Hearing on Thursday, and the latest UK GDP m/m on Friday.

Key Movers

Germany, the Eurozone’s largest economy, recorded monthly growth in its factory orders of 3.2% in December, a rebound from the revised slump of 4.4% the previous month. Eurozone retail sales for December are due for release later in today’s session and are expected to show a fall of 2.5% on the month, an annual drop of 2.7%.

These releases are expected to be low impact announcements for the euro, but data has been confirmed as a main driver behind the European Central Bank’s (ECB) decisions. This puts all data releases under increased attention unless the ECB changes its stance.

GBP/EUR has made a play for 1.1200 this morning after touching October lows of 1.1140 on Friday. EUR/USD is back down at mid-January lows after the US jobs data on Friday and the tensions between China and the US.

Expected Ranges

  • GBP/USD: 1.1910 - 1.2140 ▼
  • GBP/EUR: 1.1140 - 1.1220 ▼
  • GBP/AUD: 1.7310 - 1.7530 ▲
  • EUR/USD: 1.0670 - 1.0870 ▼