The global financial markets experienced a tumultuous period this week as a series of economic indicators and policy announcements sent ripples through currency exchanges. The 14-day Relative Strength Index (RSI) remained strong above 60.00, indicating a bullish momentum despite investor concerns. The Pound Sterling faced pressures following Chancellor of the Exchequer Rachel Reeves's announcement of an increase in employers' National Insurance contributions. Meanwhile, the US Dollar staged a recovery, buoyed by expectations of persistent inflationary pressures under President Donald Trump's economic agenda. In Canada, attention turned towards the upcoming inflation report from Statistics Canada, while the Federal Open Market Committee (FOMC) minutes were poised to influence the US Dollar significantly.
The Pound Sterling experienced a decline as investors reacted to the news from Chancellor Rachel Reeves regarding National Insurance contributions. Concerns over employment data surfaced, underscored by the Chancellor’s announcement, which added to existing worries about the UK labor market. Despite these concerns, the Office for National Statistics (ONS) reported a significant addition of 107,000 workers, surpassing the previous period's 35,000. Moreover, average earnings excluding bonuses accelerated to 5.9%, matching expectations, up from a prior reading of 5.6%. The ILO Unemployment Rate remained steady at 4.4%, defying predictions of an increase to 4.5%.
In contrast, the US Dollar made gains as it bounced back from previous lows, with the US Dollar Index (DXY) recovering to near 107.00 from a two-month low of 106.50. Investors anticipated that President Donald Trump's economic policies might lead to sustained inflationary pressures. The upcoming release of the FOMC minutes for January was highly anticipated as a potential catalyst for further movement in the US Dollar. Fed Governor Michelle Bowman emphasized that the benchmark interest rate is currently well-positioned, allowing the committee to adopt a patient approach and closely monitor evolving inflation data.
Across the Atlantic, the EUR/USD pair struggled amidst mixed economic signals. Despite upbeat ZEW Survey Economic Sentiment data for Germany and the Eurozone, the currency pair declined toward 1.0450 on Tuesday. The market's focus remained on President Trump's reciprocal tariff plan, which has been delayed and is unlikely to take effect before April. President Trump has announced a series of tariffs, including 25% on steel and aluminum imports from all nations and an additional 10% on imports from China.
Andrew Bailey, Governor of the Bank of England, acknowledged some softness in the UK labor market. Following the release of job data showing unexpected stability, Bailey remarked that the latest figures were "not far out of line" with expectations and noted that pay growth had risen "less" than anticipated. These comments came as investors digested a complex economic landscape shaped by varying domestic and international factors.
In Canada, anticipation built around Statistics Canada's impending inflation report for January, derived from Consumer Price Index (CPI) data. This report is expected to provide insights into inflationary trends that could impact monetary policy decisions moving forward.