Pound Hits 20-Month High Vs Euro, US Dollar Dented

GBP/EUR Exchange Rate: Pound Hits 20-Month High vs Euro

The Pound Euro exchange rate hit its highest levels since the start of the pandemic as Bank of England (BoE) rate hike expectations continued underpinning support for Sterling.

BoE governor Andrew Bailey added fuel to an interest rate rise at the weekend by saying the central bank ‘will have to act’ over rising inflation.

Investors are now pricing in a likely interest rate hike before the end of the year, which has in turn boosted the Pound Euro exchange rate.

Looking ahead, GBP investors will react to UK Inflation data released this morning that unexpectedly dipped from 3.2% to 3.1%. With the BoE forecasting inflation to rise above 4% by the end of the year, expectations for a rate hike may remain unaffected.

GBP/USD Exchange Rate: Pound Climbs to Month High

The Pound US Dollar exchange rate rose to a one-month high this week amid a more upbeat market mood following a rally in equity markets.

GBP exchange rates received support towards the end of last week on optimism that the UK and EU could reach an agreement on the Northern Ireland protocol.

Under EU proposals, spot checks on good would reduce by about 80% and customs paperwork cut by 50%, although talks could still sour as the two sides appear to still hold fundamentally different positions.

High-impact UK data released at the end of the week may limit GBP/USD, with activity in the manufacturing and services sectors forecast to have slowed in October potentially causing concerns over UK economic growth.

USD/GBP Exchange Rate: US Dollar Dented by Risk-On Trade

The US Dollar has trended lower through the week as a risk-on mood weighed on demand for the safe-haven currency.

High US inflation at 5.4% and the Federal Reserve Open Market Committee (FOMC) meeting minutes reiterating the bank’s outlook also dented USD as investors appeared to view the data as having little impact on altering the Fed’s plans to taper its bond-buying programme.

Plunging consumer confidence figures and worse-than-expected industrial production of a -1.3% contraction in September added further pressure on the ‘Greenback’.

Ahead of US durable goods orders data next Wednesday, the US Dollar will likely be driven by shifts in market mood and Fed taper talk, while PMI data is expected to show slowing business activity in October.

EUR/USD Exchange Rate: Euro Gains on US Dollar Weakness

The Euro rose against the US Dollar this week, with the single currency benefitting from its negative correlation with USD weakening in the absence of major Eurozone data releases.

Despite soaring energy prices, supply chain problems and the European Central Bank’s (ECB) diverging stance on tightening monetary policy compared to the Fed and BoE, EUR/USD strengthened.

Eurozone data releases this week may limit the Euro as consumer confidence is forecast to dip slightly, and manufacturing and services PMIs are expected to show expansion in the sectors slowed during October.

However, the Ifo business climate index for Germany may add some support to EUR exchange rates at the start of next week, with forecasts pointing to an improvement in sentiment for the first time in four months.

Andrew Roberts

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