Pound Rocked by Lacklustre Data, US Dollar Reverses Gains Amidst Fed Tapering Uncertainty

GBP/EUR Exchange Rate: Pound Plunges Following Disappointing Data 

The Pound Euro (GBP/EUR) exchange rate faced an aggressive sell-off through the second half of last week, with the pairing plummeting over a cent on the back of some abysmal UK data. 

The selloff was initially triggered by the UK’s consumer price index, after showing domestic inflation cooled more than expected last month. 

Alongside a surprise contraction in retail sales growth last month and a worrying rise in domestic coronavirus cases, this raised concerns about the state of the UK economy and dampens the prospect of the Bank of England (BoE) tightening its monetary policy in the near-term. 

While the GBP/EUR exchange rate has been able to claw back some of its losses this week, the pairing remains vulnerable amidst a lull in notable UK data and the ongoing rise in domestic coronavirus cases. 

GBP/USD Exchange Rate: Sterling Firms as Market Sentiment Improves 

After sinking to a seven-month low last week, the GBP/USD exchange rate has managed to mount a convincing recovery so far this week. 

This rebound in the Pound has been primarily driven by an improving market mood, with Sterling behaving in a similar manner to a risk-sensitive currency. 

However, this upside in the GBP/USD exchange rate was tempered somewhat by the release of the UK’s latest PMI releases, which revealed activity in the service sector slowed to a five-month low in August. 

The Pound may remain volatile over the coming week as the extended bank holiday weekend and thin trading conditions will likely see Sterling remain highly sensitive to market sentiment. 

USD/GBP Exchange Rate: US Dollar Plunges on Fed Tapering Rethink 

The US Dollar went from strength-to-strength last week, with investors flocking to the safe-haven currency amidst a prevailing risk-off mood. 

This was largely driven by the publication of the minutes from the Federal Reserve’s July policy meeting, which revealed policymakers have begun formal tapering discussions.  

Investors were spooked by the prospect of the Fed potentially withdrawing some of its pandemic-era stimulus at a time when global coronavirus cases appear to be on the rise, which weighed heavily on market sentiment. 

However, we have seen the US Dollar subsequently relinquish a good portion of these gains this week, after a rise in domestic Delta cases and dovish remarks from a Fed policymaker has raised doubts that the Fed could use its annual Jackson Hole symposium to announce a tapering timeframe. 

Despite doubts over the Fed’s tapering plans, the summit is still likely to remain the primary focus for USD investors this week, and all eyes will be on Fed Chair Jerome Powell when he speaks on Friday. 

EUR/USD Exchange Rate: Euro Rallies as USD Retreats 

After striking a 10-month low in the latter half of last week, the EUR/USD exchange rate has been able to mount a recovery this week, largely as a result of the pullback in the US Dollar. 

However, the Euro has been able to find some of its own support this week on the back of Germany’s latest GDP release, after the finalised reading for the second quarter saw growth revised slightly higher. 

This helped to offset a report from Germany central bank, the Bundesbank at the start of the week, in which it warned that German economic growth is likely to miss its 2021 forecast due to the spread of the Delta variant. 

Looking ahead, the focus for EUR investors is likely to be on Germany’s and the Eurozone’s upcoming CPI figures, with the Euro likely to strengthen if inflation in the bloc continued to accelerate this month.