GBP/EUR Exchange Rate: Pound Slips on Slowing UK Growth Concerns
The Pound Euro exchange rate retreated from a 23-month high in last week’s session and has since trended lower on worse-than-expected UK economic data.
Retail sales data for December in the UK contracted far more than expected at -3.7%, fuelling concerns over weaker economic growth in the fourth quarter of 2021 as the Omicron variant hit the country.
Sterling then came under more pressure at the start of this week after the UK’s services PMI for January missed forecasts, indicating UK business activity slowed to an 11-month low and added to UK growth fears.
Looking ahead, in the absence of notable UK economic data releases, markets anticipating a rate hike from the Bank of England (BoE) later next week will remain a key driver of GBP exchange rates.
GBP/USD Exchange Rate: Pound Drops on UK Political Uncertainty
The Pound US Dollar exchange rate fell to a three-week low this week as a risk-off mood swept markets.
Growing political uncertainty in the UK government created by the furore over Downing Street parties and allegations of blackmail by Conservative party whips has weighed on Sterling sentiment.
The increasing pressure for Prime Minister Boris Johnson to resign look likely to come to a head in the coming days as the official inquiry into the parties and any wrongdoing is due to be passed to the government.
At the same time, ongoing post-Brexit trade negotiations on the Northern Ireland protocol continue stoking GBP volatility. While the UK and EU described the latest round of talks as ‘constructive’, reports suggest European Commission vice-president Maros Sefcovic will pause talks if no progress is made in February.
USD/GBP Exchange Rate: US Dollar Surges on Safe-Haven Demand
The US Dollar Pound exchange rate has jumped since last week as escalating tensions between the West and Russia over the threat of an invasion of Ukraine triggered a sharp market selloff.
In response to Russian troops amassing near the Ukraine border, NATO has put forces on standby for mobilisation and the US has readied reinforcements for Eastern Europe.
The growing threat of a conflict in Ukraine soured market sentiment and sharply increased safe-haven demand for the US Dollar.
Looking ahead, the Federal Reserve’s interest rate decision due on Wednesday evening may boost the US Dollar, as investors expect the central bank to signal aggressive monetary policy tightening starting with a rate hike in March.
High-impact US data releases will also act as key catalysts in USD. Improving fourth quarter GDP, the PCE price index indicating soaring inflation, and the ISM manufacturing PMI may all boost the US Dollar, although forecast contracting durable goods orders may cap gains.
EUR/USD Exchange Rate: Euro Slides on Ukraine Conflict Threat
The Euro has weakened against the US Dollar over the last week on the threat of a conflict with Russia on European soil.
Comments from European Central Bank (ECB) President Christine Lagarde also dented the Euro by reinforcing the perceived divergent policy stance with other major central banks. She said the ECB does not have to ‘act as rapidly and as brutally that one can imagine the Fed would do.’
EUR exchange rates came under more pressure at the start of this week as Eurozone PMIs revealed private sector activity slowed to an 11-month low, although an improving Ifo German business moral index limited losses.
Eurozone economic data releases in the coming week may leave the Euro without support, as forecasts point to slowing GDP growth in the fourth quarter of 2021, declining economic sentiment in January, and employment figures changing little.