Pound Surges on Hawkish BoE, US Dollar Underpinned by Robust Payrolls

GBP/EUR Exchange Rate: Pound Soars Following Hawkish BoE Policy Statement 

The Pound Euro (GBP/EUR) exchange rate rocketed higher through the second half of last week in the wake of the Bank of England’s (BoE) latest interest rate decision.

While no policy changes were made this month, the BoE’s forward guidance made mention of the possible need for ‘modest monetary tightening’ in the future, if the UK economic recovery broadly maintains its current trajectory. 

GBP investors welcomed the surprisingly hawkish turn by the BoE, amidst hopes the bank could look to start tapering its quantitative easing programme by the end of the year. 

The immediate focus for GBP investors will now turn to the UK’s latest GDP figures. Economists are anticipating a sharp rebound in UK economic growth in the second quarter, which could carry the Pound higher through the second half of this week. 

GBP/USD Exchange Rate: Sterling Losses Limited by Coronavirus Optimism 

The GBP/USD exchange rate ticked lower at the end of last week, with the Pound’s BoE driven gains being undermined by a resurgent US Dollar. 

While the US Dollar has continued to appreciate this week, Sterling has been better able to hold its ground thanks to some optimism over the UK’s currency coronavirus situation. 

With 75% of adults now fully vaccinated, and daily infections rising at a far more modest pace than initially feared, following the lifting of all remaining restrictions in England, there’s hope that the UK can finally see the light at the end of the tunnel. 

Should UK coronavirus developments remain broadly positive, the Pound is likely to be well positioned to rally on the back of the UK’s upcoming GDP and employment figures. 

USD/GBP Exchange Rate: US Dollar Bolstered by Upbeat Payroll Report  

The US Dollar closed last week’s session on a high, following the publication of the latest US non-farm payroll figures.

Despite an underwhelming ADP payroll reading earlier in the week, July’s release printed above expectations, revealing that the US economy added 943,000 new jobs and stoking speculation the Federal Reserve will soon announce plans to taper its asset purchases. 

So far this week, the US Dollar has largely maintained its upward trajectory, with the currency finding support on the back of rising US Treasury yields as well as a cautious market mood. 

Coming up, the primary focus for USD investors in the latter half of this week will no doubt be the latest US consumer price index. Will another stronger-than-expected inflation reading propel the US Dollar even higher? 

EUR/USD Exchange Rate: Euro Sinks on Disappointing Data 

The EUR/USD exchange rate has come under some sustained selling pressure over the past week. 

The downside in the Euro has been largely driven by its strong negative correlation with the US Dollar, but has been reinforced by some lacklustre EUR data releases. 

At the end of last week this came in the form of a surprise contraction in Germany’s latest industrial production release. 

This downtrend in the Euro then continued into this week, with EUR investors appearing particularly disappointed by the latest ZEW surveys from Germany, after they reported economic sentiment in the Eurozone’s largest economy slumped to a nine-month low in August.

Looking ahead, the Euro could face additional pressure through the second half of this week as the Eurozone’s latest industrial production figures are expected to report another contraction of factory output at the end of the second quarter.