Pound US Dollar Plummets to 8-Month Low, Euro Volatile

GBP/EUR Exchange Rate: Pound Gives Up Bank of England Driven Gains

The Pound Euro exchange rate fell sharply yesterday to relinquish the gains the pairing made over the last week driven by the Bank of England’s (BoE) latest interest rate decision.

While the BoE opted to leave interest rates unchanged, GBP/EUR made strong gains as the central bank hinted at modest monetary tightening and a possible rate hike.

The minutes from the bank’s meeting showed they expect inflation to rise above 4% in 2021 Q4, triggering analysts to forecast the bank will raise interest rates in early 2022.

However, the Pound slid during Tuesday’s session due concerns over the UK’s economic outlook amid energy and fuel crises that look set to weigh on GBP exchange rates this week.

GBP/USD Exchange Rate: Pound Crashes to 8-Month Low Vs US Dollar

The Pound US Dollar exchange rate fell to its lowest levels since January as the UK’s fuel shortage crisis dragged on Sterling sentiment yesterday.

Against the backdrop of soaring energy prices, supply chain disruption, and increasing inflationary pressures, concerns have risen of stagflation in the UK economy.

GBP/USD has tumbled on worries of slowing UK economic growth, with the services and manufacturing PMIs last week showing private sector activity slowed to a 7-month low and highlighted increasing difficulties UK businesses face as well as surging prices.

Upside in the Pound looks limited over the next week despite the UK government attempting to resolve fuel shortages, as supply chain issues and inflationary pressure look likely to persist and cast doubt over the UK’s economic growth.

USD/GBP Exchange Rate: US Dollar Soars in Risk-Off Trade

The US Dollar has skyrocketed against the Pound this week after US Treasury yields rose and global market sentiment soured, boosting demand the safe-haven ‘Greenback’ yesterday.

The USD/GBP exchange rate gave up its Federal Reserve, monetary policy tightening-driven gains at the end of last week due to a more upbeat market mood.

However, souring global market sentiment this week has boosted safe-haven USD demand as Chinese property giant Evergrande struggles with payments and threatens to spark an equity market selloff, coal shortages in China cause power outages and halt factory production, and Europe’s energy crisis grows.

An upcoming speech by Fed Chair Jerome Powell could stoke volatility in the US Dollar as he provides more insight into the central bank’s monetary policy to US Congress.

Meanwhile, the ISM non-manufacturing and service PMIs could provide support as forecasts indicate solid growth in US business activity in September.

EUR/USD Exchange Rate: Euro Weakens Following German Federal Election

The Euro US Dollar exchange rate has trended lower over the last week as German Federal election uncertainty caused volatility in the single currency.

EUR/USD fluctuated as the destabilising effect of a change of German government stoked uncertainty among investors, and the latest Eurozone PMIs last week showed private sector activity slowed in the bloc.

The close election result and uncertainty around who and how long it will take to form a government has continued weighing on EUR/USD exchange rate at the start of this week.

Looking ahead, Eurozone unemployment and inflation data will likely drive additional movement in the single currency. Inflation is expected to have risen to 3.3% in September as Europe feels the impact of an energy crisis and supply chain constraints.