GBP

This week Sterling will be largely driven by risk sentiment and the Bank of England’s announcement.

EUR

The euro fell to two year lows against the pound on Friday. Markets have now begun to price in an interest rates rise by a further 0.25% bringing the total to 0.5%.

The BoE will meet on Thursday to decide if the rate hike will be put in place. If they opt to hold off, this will cause the euro to regain some of the losses from Friday.

The GDP data release in Europe may have also played a part in the euro losses from last week. Upbeat GDP numbers out of France contrasted sharply with a bigger-than-expected contraction of the German economy in Q4.

This poses a possible dilemma for the European Central Bank when it meets next week as it tries to strike a policy balance for all Eurozone members amid soaring price pressures.

USD

The dollar finished the week strongly and traded at fresh highs against both the euro and Sterling on Friday.

The move higher follows Wednesday’s US interest rate decision. The dollar rallied as Federal Reserve officials signalled March as a likely start date for hiking interest rates in the US. Prior to the meeting, markets had been forecasting four US interest rate hikes for 2022 and 2023 respectively.

However, hawkish comments from Fed Chair Jerome Powell stated that the US may need to hike at a faster pace than previous hiking cycles. Many banks have been forced to reconsider initial rate calls. For instance, BNP Paribas now expect six hikes this year whilst Bank of America anticipate seven interest rate hikes this year.

Key announcements

None