Pound Rallies on Hawkish BoE Commentary, US Dollar Demand Limited in Bullish Trade

GBP/EUR Exchange Rate: Pound Surges on Hawkish BoE Comments 

The Pound to Euro (GBP/EUR) exchange rate rocketed higher through the second half of last week’s session as GBP investors welcomed some hawkish comments from a member of the Bank of England’s (BoE) Monetary Policy Committee (MPC). 

In a scheduled speech, BoE policymaker Gertjan Vlieghe hinted the bank could start hiking interest rates from early 2022, assuming the end of the government’s furlough scheme doesn’t trigger a sharp rise in unemployment. 

This helped to reverse a steady decline in the GBP/EUR last week which saw the pairing strike a two-week low. 

Looking ahead, the Pound may trend higher again in the second half of this week, if the reopening of more of the UK economy in Mid-May resulted in the UK’s services index being revised higher. 

GBP/USD Exchange Rate: Sterling Undermined by Coronavirus Fears  

After soaring at the end of last week, the GBP/USD exchange rate has begun to falter this week as the pairing is undermined by renewed coronavirus concerns in the UK. 

As cases of the Delta (Indian) variant in the UK continue to rise a number of health experts have begun to warn the country is at the start of a third wave and have questioned whether it is wise to reopen more of the economy. 

Unsurprisingly this has alarmed some GBP investors and resulted in the Pound relinquishing ground against the US Dollar. 

With UK coronavirus developments likely to remain in the spotlight, Sterling could face some headwinds through the remainder of the week. 

USD/GBP Exchange Rate: US Dollar Rocked by Fed Speculation 

The USD/GBP exchange rate briefly struck higher at the end of last week as the PCE price index, the Federal Reserve’s preferred indicator of inflation, printed above expectations. 

However, these gains proved short-lived, as analysts warned it was unlikely to be enough to alter the Fed’s currency dovish stance. 

The US Dollar also faced some pressure in the first half of this week amidst a prevailing risk-on mood, before an appreciation of US Treasury yields helped the ‘Greenback’ to claw back a good portion of its losses in mid-week trade. 

Looking ahead, the publication of the latest US payroll figures will no doubt be the focus of attention in the second half of this week. Economists are forecasting a strong pick up in US employment growth in May, but another big miss could prompt some aggressive selling of the US Dollar.  

EUR/USD Exchange Rate: Euro Finds Fleeting Gains on Upbeat Inflation 

After holding in a narrow range in the latter half of last week, the EUR/USD exchange rate got off to a strong start this week. 

This was helped in large part by an upwards revision to the Eurozone’s latest manufacturing PMI, as well as the bloc’s consumer price index, which revealed inflation rose to 2% last month, placing it back within the European Central Bank’s (ECB) target range. 

However, a rebound in the US Dollar as well as a sharper-than-expected contraction of German retail sales then saw the EUR/USD exchange rate relinquish almost the entirety of this week’s gains. 

There’s a chance for the Euro to recoup some of these losses later in the week however, if the Eurozone’s latest services PMI and retail sales figures print positively. 

Matthew Andrews

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