Pound Boosted by BoE, US Dollar Dented by Dire Payrolls

GBP/EUR Exchange Rate: Pound Bolstered by BoE Comments

The Pound Euro (GBP/EUR) exchange rate has strengthened over the last week, hitting a two-month high on Monday.

Comments from Bank of England (BoE) policymakers hinting at raising interest rates sooner than expected boosted Sterling.

Chief economist Huw Pill warned of elevated inflation risk, Governor Andrew Bailey said inflation needs to be managed to prevent it becoming embedded, and Monetary Policy Committee (MPC) member Michael Saunders gave the clearest signal by saying households should get ready for ‘significantly earlier’ interest rate rises.

More speeches from MPC members this week will likely drive movement in GBP as investors look for insight into the bank’s plans to tighten monetary policy ahead of the bank’s November decision.

GBP/USD Exchange Rate: Pound Supported by UK Employment and GDP Data

The Pound US Dollar (GBP/USD) exchange rate has ticked higher despite fluctuating through the first part of this week’s session.

GBP exchange rates received support last week as fuel shortages eased and soaring natural gas prices retreated from record highs after Russian President Vladimir Putin hinted at the country increasing supplies to Europe.

However, Sterling came under pressure from concerns that a looming UK energy crisis could cause shutdowns in heavy industries such as steel and ceramics manufacturing.

Data showing UK unemployment fell from 4.6% to 4.5%, and GDP rose 0.4% August supported Sterling this week.

UK data releases are thin until next Wednesday’s inflation rate for September publication. With inflation expected to remain at a nine-year high, investors may continue pricing in a BoE rate hike, underpinning Sterling support.

USD/GBP Exchange Rate: US Payrolls Report Drives US Dollar Movement

The US Dollar (USD) has slipped over the past week as shifting risk appetite driven by Congress agreeing to extend the US debt ceiling, Fed tapering speculation, and the US payrolls report stoked USD volatility.

USD/GBP dropped in the aftermath of far weaker-than-expected US non farm payrolls figures that missed forecast of 500,000 and came in at 194,000.

With the Federal Reserve widely expected to announce tapering of its bond-buying programme in November, the dire employment data caused some analysts to question whether the Fed would alter its plans. However, US Treasury yields rose soon after suggesting many investors expect the Fed to taper.

Looking ahead, CPI data may boost USD later today. Inflation is forecast to remain elevated at 5.3% in September, potentially strengthening the case for the Fed to tighten monetary policy.

EUR/USD Exchange Rate: Euro Limited by Drop in Economic Sentiment

The Euro (EUR) has fluctuated against the US Dollar through the week, starting Wednesday’s session at similar levels to a week ago.

EUR exchange rates have remained pressured by the threat of an energy crisis in Europe due to the impact soaring energy prices are having on consumers and businesses, affecting the bloc’s economic recovery.

Eurozone data releases have also dented the single currency, with October’s ZEW economic sentiment index falling to its lowest level since March 2020 at the start of the pandemic, and a contraction in industrial production in August of -1.6%.

The Euro may struggle to make gains through the week ahead as the European Central Bank (ECB) maintains its loose monetary policy stance, differing to other major central banks that are set to tighten support amid rising inflationary pressure.