Weekly Brief

Tough times

5 minute read


Whilst there still remains much uncertainty around Ukraine, ‘most’ G10 currencies have steadied, and remained within a slightly more digestible range over this past week.

GBP/USD is one good example. Having dropped from 1.3600, to a smidgeon under 1.3300 over Wednesday and Thursday last week, the pair has spent this entire week (until today) trapped within a 160pip range. Assessing key economic metric over the coming months will give markets a better perception of the impact.

Where there was more volatility to be had for the pound was in the realms of GBP/EUR, which had a much more eventful week, moving back above 1.2000, marking a new post-Brexit high for the pound in the process. Before we all get too carried away with visions of UK economic outperformance, the move was much more to do with the single currency (see EUR), as anything. However, the move back above 1.2000 is noteworthy, given the pound’s struggle to gain a meaningful foothold on previous excursions to this region.



There was plenty of volatility for the EUR this week. The single currency took a sharp downturn on the back of events in the Ukraine. EUR/USD has now dropped from nearly 1.1500, to just over 1.1000 in less than a month. There are several reasons to this. On the human side, roughly one million Ukrainians have now sought safety and sanctuary in the European countries that border with Ukraine, which does place a burden on national resources. At least in the short-run.

Before last week, Europe relied on Russia for over 40% of its Natural gas requirements. That is now a very big gap to fill, and markets pounced on that, with key commodity prices surging through the week, and the single currency dropping markedly.

Moreover, the trouble for the ECB is that this even bigger move higher in energy prices, will undoubtedly give Euro-area inflation further upside bias over the coming months. This may yet force the ECB’s hand later this year, as they, much like the rest of the developed world, turn to higher rates in an attempt to tame inflation. Indeed, the latest inflation figures were already nearly at 6% in Europe, and that was before this week’s energy price increases hit the consumer’s pocket.



In any normal week, the sight of Fed Chair, Jay Powell, giving his semi-annual testimony to congress would be the highlight for markets. We lapped it up. Currencies literally gyrated on every word he said, as traders tried to second guess the Fed’s outlook. This week, however, it was different. Sure, there was some volatility around parts of his testimony. In particular, his preference for a 25bps rate hike (over 50bps) at this month’s meeting buoyed risk appetite. Weak growth and slowing economies go together like marmalade and marmite. Markets are struggling to understand all of this. You can’t price in what you don’t know, and uncertainty is the markets worst nightmare.

Today’s nonfarm payrolls are expected to show another strong month for the labor market in the U.S. However, a strong number is unlikely to sway the Fed to raise by 50bps over 25bps, given the bigger developing issues.

The ‘broader’ dollar marked gains this week as a whole. The DXY (dollar index) is now moving back toward the 100 region, a level not seen since the middle of 2020. USD/JPY moved back above 115.00, which highlights that the safe-haven JPY fell victim to some profit taking, as markets edged toward a slightly more bullish outlook through the course of the week.



The Bank of Canada raised Canadian interest rates for the first time since 2018, this week. The 25bps (to 50bps) hike had been well and truly priced into markets, given the high energy costs benefitting the Canadian economy. Furthermore, the BoC also announced Q4 GDP growth of 6.7% (annually), describing that figure as ‘very strong’. Ahead of the pandemic (remember that), Canadian rates were up at 1.75%, before the BoC quickly slashed rates alongside other central Banks, such as the Fed, in a bid to boost the economy. However, the BoC may have more flexibility on rates than many other key central banks at the moment, and further, gradual, hikes look the order of the day going forward.

All of this is helping to boost the Canadian dollar. Commodity currencies, such as the Loonie, tend to be more impacted by the price of Oil when it is at an extreme level – such as now. USD/CAD has moved down from near 1.2900 to a 1.2600 low. That’s a good effort given the strength of the greenback of late.



Much the same as in Canada, the Australian economy has a heavy bias towards exporting commodities. On the data side, an Australian Trade surplus of 12.9B – versus 9.1B expected, combined with an expansion in exports of 8%, and a worthy beat in GDP, highlights the strength in the economy. The currency continued its probe higher, buoyed further by those soaring commodity prices, despite the extreme floods this week. AUD/USD rallied over 0.7300 (properly) for the first time since November, as a consequence.

The move may have been more protracted but for the rather downcast statement from the RBA at this week’s meeting. In fairness to the RBA, they are right to remain patient – highlighting the war in Ukraine as a major new source of uncertainty, commodity prices notwithstanding. The NZD advanced 2% on the week too. NZD/USD is trying to force its way above 0.6800.


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