By James Caley
Sterling and the Euro both edged higher against the US Dollar from Monday to Thursday, with the Dollar giving back some support as political developments and Davos headlines shifted sentiment away from US assets. GBPUSD rose by around 0.4% over the period, while EURUSD gained roughly 0.3%. The moves were modest rather than dramatic, but the overall direction was a slightly weaker Dollar. The week started calmly, before comments from political and business leaders at the World Economic Forum in Davos added uncertainty around trade, geopolitics and longer-term US policy, which weighed gently on the US currency.
Against the Euro, Sterling was largely range bound. GBPEUR struggled to move meaningfully in either direction, trading within a narrow band and ending the period little changed, up by around 0.1% at most. The single currency held up reasonably well while the Dollar softened. Eurozone data continued to highlight weak growth, with business surveys and industrial figures pointing to ongoing stagnation, particularly in Germany. However, European Central Bank speakers in Davos repeated that inflation risks have not fully disappeared and that any move towards rate cuts would be slow and guided by incoming data. That cautious message helped keep the Euro steady and limited movement in GBPEUR.
In the UK, the Pound found some support from a mixed domestic picture. Recent labour-market and inflation data left markets expecting the Bank of England to cut rates later this year, but not in the near term. This meant Sterling was influenced more by global sentiment than by any single UK data release. Elsewhere, Sterling also edged higher against some other major currencies, rising by around 0.5% against the Australian Dollar and 0.4% versus the Canadian Dollar as risk appetite improved slightly and energy prices moved higher. Looking ahead to the end of the week, today’s data could still move markets. December retail sales and the January flash Manufacturing and Services PMIs will be watched for signs of how consumers and businesses are coping. In the Eurozone, Germany’s flash Manufacturing PMI will be an important check on whether activity is stabilising or still weakening. Any clear surprise in these releases could still drive late-week moves in GBPEUR, GBPUSD and EURUSD into the weekend.