GBP/EUR Exchange Rate: BoE Refuses to Commit to Aggressive Rate Hikes
The Pound Euro exchange rate fluctuated over the past week as Russia’s invasion of Ukraine infused considerable volatility into the pairing.
This volatility in the GBP/EUR exchange rate was exacerbated by a dovish change of tact from the Bank of England (BoE).
Uncertainty in the markets has even seen previously hawkish policymakers change their rhetoric. Speaking to Parliament’s Treasury select committee last week, BoE Governor Andrew Bailey warned markets ‘not to get carried away’ with aggressive rate hike bets.
Should further speeches from BoE policymakers on Wednesday and Thursday show a dovish tone then confidence in the Pound could fall further.
GBP/USD Exchange Rate: Strong Manufacturing Growth Underpins GBP Losses
Considerable risk-off flows saw the Pound US Dollar fall over the course of last week. The Russian invasion of Ukraine caused a retreat in global risk appetite which undermined confidence in the Pound
The release of the UK’s latest manufacturing PMI helped to temper some of Sterling’s losses this week. February’s finalised figures showed the factory sector growing at its fastest rate since July 2021. The growth was spurred by strong demand and the the easing of supply chain disruptions.
However, analysts pointed out that the positive trend was unlikely to continue. Economic sanctions imposed on Russia are likely to further the manufacturing sector’s growth.
Looking ahead, February’s services PMI could see the currency pair climb should it rise as forecast on Thursday.
USD/GBP Exchange Rate: Risk-Off Trading sees Dollar Soar
The US Dollar benefitted from a risk-off mood across the markets last week. This in turn saw the US Dollar Pound (USD/GBP) exchange steadily climb as trading focused on safe-haven currencies amid the invasion of Ukraine.
The currency pair was also bolstered by positive US data releases last week. GDP growth for 2021’s fourth quarter came in well above forecasts, and February’s PMI saw a continued recovery in the US manufacturing sector.
The ‘Greenback’s gains have been capped however, as market uncertainty driven by the Russia-Ukraine conflict dented expectations of an aggressive rate hike from the Federal Reserve this month.
Another robust Non-Farm Payrolls reading on Friday could push USD higher on Friday if it is seen as bolstering rate hike expectations.
EUR/USD Exchange Rate: Euro Remains Under Pressure as Russian Forces Advance
The Euro US Dollar (EUR/USD) exchange rate continued to fall over the course of last week. The Russia-Ukraine conflict has weighed heavily upon the Euro (EUR), whilst risk aversion has drawn demand to the US Dollar (USD).
Peace talks between the two countries provided some fleeting support for the Euro. As the talks ended with no resolution and fighting intensified however, the EUR sell-off resumed.
Worries over energy supplies in the Eurozone have also placed some notable pressure on the Euro. Multiple Eurozone leaders are hoping to diversify their gas supplies over fears that Russia may cut off access.
Looking to the week ahead for the Euro, upbeat unemployment figures could help boost the single currency, so long as they aren’t overshadowed by the situation in Ukraine.