US Dollar Undermined by Abysmal Payroll Reading, Pound Plunges amid Growing Economic Uncertainty

GBP/EUR Exchange Rate: Pound Retreats amid Economic and Brexit Uncertainty 

The Pound Euro (GBP/EUR) exchange rate closed last week’s session on a high, rising to a near two-week high, in spite of a lack of a clear catalyst for the move. 

However, the Pound was unable to sustain these gains for long, and has subsequently retreated this week in the face of ongoing economic uncertainty, as recent UK data releases highlight the labour shortages and supply constraints that are facing businesses. 

The threat of fresh Brexit tensions between the UK and EU have also taken their toll on Sterling sentiment, as the UK government’s move to unilaterally extend the grace period on Border checks in the Irish sea, threatens to provoke legal action from Brussels. 

Looking ahead, the publication of the UK’s latest GDP figures could extend the downside in the GBP/EUR exchange rate later this week, as economists forecast growth in the three months to July will have slowed, in spite of more of the economy opening up. 

GBP/USD Exchange Rate: Sterling Slumps on NI Rise 

Broad US Dollar weakness allowed the GBP/USD exchange rate to climb to a one-month high at the end of last week’s session. 

However, the pairing has since relinquished nearly all these gains this week, following a slump in Sterling sentiment following Boris Johnson’s announcement of a 1.25% rise in nation insurance contributions. 

It’s hoped that the tax increase will help to clear a health backlog caused by the pandemic as well as help improve social care, but some businesses have expressed concern that the increase could result in job losses. 

Also in focus for GBP investors over the next week will be the publication of the UK’s latest jobs report, with the Pound potentially strengthening if wage growth remained robust at the start of the third quarter. 

USD/GBP Exchange Rate: US Dollar Rocked by Lacklustre Payrolls 

The US Dollar limped over the finishing line last week in the wake of the latest non-farm payrolls, after US employment growth in August came in well below expectations. 

Despite an extended weekend in the US creating thin trading conditions, the ‘Greenback’ has so far managed to mount a convincing recovery this week. 

This rebound in the US Dollar has been supported by an uptick in US Treasury yields as well as a souring of market sentiment. 

Still to come this week is the publication of the latest US initial jobs claims, with an expected drop in new claims potentially extending the uptrend in the USD/GBP exchange rate. 

However, the publication of August’s US inflation figures in the first half of next week will act as a greater catalyst of movement for the US Dollar. Will another slowing of inflation weaken USD exchange rates? 

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

The EUR/USD exchange rate soared to a new one-month high at the end of last week, as a broad pullback in the US Dollar helped the Euro to avoid any losses following a shock contraction in the Eurozone’s latest retail sales figures. 

The Euro was then able to hold on to these gains at the very start of this week, as EUR investors welcomed data showing a surprise expansion in German factory orders in July. 

However, the EUR/USD exchange rate then fell sharply on Tuesday after Germany’s latest ZEW survey revealed economic sentiment in Europe’s largest economy, fell to a new post-pandemic low this month. 

Looking ahead, the spotlight in the second half of this week will undoubtedly be on the ECB’s latest interest rate decision. 

While no policy changes are expected this month, the Euro could be propelled higher if policymakers hint at plans to begin reducing its pandemic emergency purchase programme (PEPP) in the coming months.