Pound Slumps despite Robust UK Data, Collapse in US Consumer Morale Stokes Volatility in the US Dollar

GBP/EUR Exchange Rate: Robust UK Data Fails to Impress GBP Investors 

The Pound Euro (GBP/EUR) exchange rate has shed around a cent over the past week, in spite of some robust high profile data releases. 

The pullback in the GBP/EUR was initially triggered by the publication of UK’s latest GDP estimate late last week, with GBP investors seemingly unimpressed by a 4.8% expansion of growth in the second quarter, amidst concerns that the UK economy still has a long way to go to recover its pandemic losses. 

This was followed by the publication of an upbeat jobs report in the first half of this week. Which saw a surprise drop in unemployment and surging wage growth being dismissed by traders, who expressed concerns the UK’s labour figures could start to deteriorate as the furlough scheme comes to an end next month. 

The focus for GBP investors will now turn to publication of the UK’s latest retail sales figures at the end of this week. Will a stronger-than-expected expansion of sales growth help the Pound to claw back some of its recent losses?  

GBP/USD Exchange Rate: Pound Sinks to Three-Week Low 

The GBP/USD exchange rate has plunged to its worst levels since late July over the past week as the Pound struggled to hold its ground against a resurgent US Dollar. 

This slump in Sterling sentiment appears to have been at least partially attributed to a dialing back of Bank of England (BoE) tapering expectations by GBP investors, who are less confident the bank will begin winding down its quantitative easing programme later this year. 

Positive coronavirus developments, such as the reopening of most of the Scottish economy, provided only limited support to the Pound at the start of this week, leaving Sterling vulnerable to a stronger US Dollar.  

Looking ahead, the Pound should be in a good position to rally in the coming week, as the UK’s positive progress in reopening its economy, alongside Sterling’s recent drop in value should make GBP a more attractive prospect for investors. 

USD/GBP Exchange Rate: Collapse in US Consumer Morale Infuses Volatility into the US Dollar 

The US Dollar has traded in a wide range over the past week, as the currency’s upward trajectory was disrupted by some abysmal US consumer confidence figures. 

According to the University of Michigan’s consumer sentiment index, household morale in the US plummeted to a near decade low this month, triggering a sharp plunge in the US Dollar at the end of last week’s session. 

However the US Dollar has been back in fine form so far this week, as a souring market mood has seen skittish investors flock to the US currency. 

The immediate focus for USD investors now turns to the publication of the minutes from the Federal Open Market Committee’s (FOMC) July policy meeting. 

Their release on Wednesday evening could put the brakes on the US Dollar as they are likely to reaffirm the Federal Reserve’s current dovish bias.  

EUR/USD Exchange Rate: Euro Driven by Negative Correlation with USD 

In the absence of any noteworthy EUR data releases, the Euro’s strong negative correlation with the US Dollar has resulted in movement in EUR exchange rates being largely dictated by movement in the ‘Greenback’ over the past week. 

As a result, the single currency has fluctuated as the US Dollar plummeted late last week before rallying sharply this week. 

Whilst offering limited direction to the Euro after printing in line with expectations, the single currency has nonetheless been offered some limited support from some robust GDP and inflation data. 

Turning to the week, ahead, the focus for EUR investors will most likely be on the Eurozone’s upcoming PMI releases. This could place some pressure on the Euro at the start of next week if activity in the bloc’s private sector continued to moderate this month.