US Dollar Slumps on Powell’s Tapering Comments, Euro Bolstered by Surging Inflation

GBP/EUR Exchange Rate: Pound Undermined by Mounting Economic Concerns 

The Pound Euro (GBP/EUR) exchange rate trended broadly lower over the past week, with the pairing even briefly touching a new one-month low in the process. 

This pullback in the pairing appears to have been primarily driven by mounting economic uncertainty within the UK, as firms warn that staff shortages and gaps in the supply chain could negatively impact the key Christmas trading period. 

GBP investors are concerned that these underlying issues could stymie the UK’s economic recovery through the second half of 2021, fears of which are limiting the appeal of Sterling. 

Looking ahead, the Pound may face an uphill battle over the coming week so long as these concerns continue to propagate.  

GBP/USD Exchange Rate: Sterling Fluctuates amidst Worrying Coronavirus Statistics 

The GBP/USD exchange rate traded in a wide range in the second half of last week’s session, initially facing some pressure due to concerns over the UK’s elevated coronavirus case rate, before rebounding amidst a marked improvement in market sentiment.  

The Pound then traded sideways at the start of this week as an extended bank holiday weekend in the UK resulted in thin trading conditions for the currency. 

Sterling was infused with fresh volatility on Tuesday as a result of end-of-month flows, as well as ongoing concerns over the rise of coronavirus cases in the UK. 

Still to come this week is the publication of the UK’s latest services PMI. Will confirmation that activity in the UK’s vital service slowed to a six-month low in August send the Pound lower? 

USD/GBP Exchange Rate: US Dollar Tumbles on Powell’s Tapering Comments 

The US Dollar looked to close last week’s session on a high, following remarks from Federal Reserve policymaker James Bullard, who repeated his call for the Fed to finish tapering its bond buying programme by the end of Q2 2022. 

However, USD exchange rates were then met by some heavy selling pressure at the very end of the week as a result of Fed chair Jerome Powell’s speech at the Fed’s annual Jackson Hole Symposium. 

While Powell said that it may be appropriate for the Fed to start tapering this year, his reluctance to give a firm timetable for when this would begin, came as a disappointment to USD investors. 

The US Dollar was initially met with further pressure at the start of this week, before clawing back some of its losses on Tuesday in response to rising US Treasury yields. 

In the spotlight in the second half of this week will undoubtedly be the publication of the latest US non-farm payroll figures. These could send the US Dollar higher if employment growth beats expectations in September. 

EUR/USD Exchange Rate: Euro Bolstered by Strong Inflation Figures  

The EUR/USD exchange rate appreciated sharply at the end of last week, as a pullback in the US Dollar bolstered the appeal of the Euro, thanks to the strong negative correlation between the pairing. 

The Euro then struck a three-week high at the start of this week’s session, following the publication of the Eurozone’s latest consumer price index. 

August’s preliminary CPI figures, reported than inflation in the bloc soared to a 10-year of 3%, triggering a jump in EUR exchange rates on hopes it might push some of more hawkish members of the European Central Bank (ECB) to call for the bank to start tapering its asset purchases. 

However, the Euro was unable to hold these gains for long, as EUR investors were dismayed by data showing a sharper-than-expected contraction of Germany retail sales growth in July. 

Looking ahead, the single currency could face additional headwinds at the end of last week’s session, if Germany’s dismal retail sales growth is reflected in the reading for the wider Eurozone.