EUR

Last week was a turbulent one for currency markets as shock decisions from the European Central Bank and poor inflation data in Europe caused market volatility.

ECB President Lagarde, confirmed last week, that the bank is set to raise interest rates by 50 basis points, higher than the 25 basis points the market expected. This will be the first interest rate rise across the bloc in eleven years. The main concern with raising rates across the block is fragmentation, but the central bank also confirmed they have a safety net in place for those countries that may be affected. Following the decision, the euro rallied but this was short lived.

Friday saw a collection of poor PMI data from the bloc. German and French PMI all missed expectations, adding to euro weakness. With the Italian PM resigning and Putin confirming a further reduction in the gas supply volume for next week, the euro could find itself under continued pressure.

USD

This week, all eyes move to the Federal Reserve as we await its latest interest rate decision and policy statement. Following all time high inflation readings, the market expects a raise of at least 75 basis points. There have been some reports to suggest we could see an increase of 100 basis points, but the former is more likely. Should the latter take place, expect USD strength to continue. Comments from Fed Chair Jerome Powel will also be key, with investors looking forward to guidance on the Fed’s future plans.