Market Trends Return

By Tom Arnold

This week has been a return to the trends seen over the last couple of months, of a strong Dollar, weak Euro and middling Pound.

The Dollar returned to its position as the dominant major, as a result of two factors – a weakening Euro and the announcement on Wednesday night of the FOMC minutes which indicated that the US expects to raise interest rates twice this year by 50bp, in order to combat high inflation. Rising interest rates almost always strengthens a currency as the higher yield attracts investment, and with the Dollar already the go to destination, given its safe-haven status and the ongoing Ukraine situation, rising interest rates will only draw in even more strength for the Greenback.

The Euro is struggling for a couple of reasons – the ECB have indicated they do not have plans to raise interest rates in contrast to the Uk and US, which as described above causes institutional investors to exit the single currency in search of higher yields. Additionally, of the major currencies the Euro is the most impacted by the ongoing Ukraine situation – Germany particularly is heavily reliant on Russian oil and gas, as are many European countries and as such limited supply, combined with the effect of sanctions and retaliatory action from Russia, is hugely concerning to the EU economy, which causes even more pressure on the Euro.

The Pound, well supported by recent interest rate rises, but under constant post-Brexit pressure, and political fragility as a result of the government bumbling from one mess to another, this week being the daily revelations about Rishi Sunak’s wife’s controversial business dealings and status, means that Sterling is able to take advantage of weaker currencies, most notably the Euro, but loses badly to stronger currencies, such as the Dollar. We have seen Sterling regain its 6 year highs against the Euro but drop by over a cent against the Dollar.

The day ahead has limited data of note with only Canadian employment numbers troubling the analysts. So, if you have Loony requirement make sure to keep in close contact with your currency consultant, and if you have an upcoming Euro requirement, the 6 year highs we have regained, provide a brilliant opportunity to potentially secure you rate now, maybe using a forward contract.