Pound Mixed as Growth Slows in February, US Dollar Bolstered by Hawkish Fed Minutes

  • War in Ukraine continues to harm risk appetite
  • Pound mixed as UK growth slows to a crawl
  • US Dollar bolstered by hawkish Fed stance
  • Euro dips as Ukraine-Russia conflict harms economy

GBP/EUR Exchange Rate: Kramatorsk Missile Attack Inflames Tensions

The Pound Euro exchange rate continued to climb over the past seven days as the war in Ukraine entered its seventh week. The conflict continued to drive movement in the currency pair. A missile attack on Kramatorsk railway station by Russian forces killing at least 57 people further escalated tensions.

Major gains for the Pound may have been limited by some domestic headwinds however. The country’s worsening cost of living crisis kept pressure on the currency. Additionally, chaos at major UK airports saw hundreds of flights cancelled amid the country’s first post-Covid holiday.

Looking ahead, the war in Ukraine is likely to continue to drive movement in the Pound Euro exchange rate. Fresh revelations surrounding the UK’s ‘partygate’ scandal could cause headwinds for the Pound.

GBP/USD Exchange Rate: Inflation Bites into Wage Growth

A dovish stance from the Bank of England and mixed UK data pushed the Pound US Dollar exchange rate lower over the past seven days. An uptick to UK government bond yields on Monday helped cushion some of the impact of poor GDP figures for February. Growth slowed to just 0.1% down from 0.8% in January.

Mixed employment figures for the UK prompted some upward movement for the currency pair on Tuesday. Whilst unemployment fell to a record low of 3.8%, wage growth failed to keep pace with inflation and vacancies hit a record high.

The week ahead will see little significant data for the Pound. Movement in the pair could be prompted by sentiment surrounding the Bank of England. If they maintain their dovish stance it could cap gains the Pound US Dollar exchange rate.

USD/GBP Exchange Rate: Fed Signals Aggressive Rate Hikes

Continued bouts of risk-averse trading kept the US Dollar Pound exchange rate buoyed over the past seven days. The pair remained volatile at the beginning of the week however, as an inverted bond yield curve led to fears of an early US recession.

The release of the minutes from the Federal Reserve’s latest meeting boosted the pair, however. Hawkish signals from multiple Fed policymakers over the past seven days further bolstered the US Dollar. The pair shed some gains on Tuesday following mixed US inflation figures. Investors had been ‘buying the rumour, selling the fact’ after core CPI printed below forecasts.

Looking ahead, a forecast rise to US retail sales in March could push the pair higher on Thursday. A predicted fall to consumer sentiment could limit gains for US Dollar however.

EUR/USD Exchange Rate: Macron Wins First Round Voting

The Euro US Dollar exchange rate fell over the past seven days amid poor data from the Eurozone. Wednesday saw German factory orders drop by 2.2% in February as the Ukraine-Russia conflict weighed on the sector.

A hawkish stance from the European Central Bank helped limit major losses for the pair, with several policymakers signalling they were ready for an interest rate hike at the ECB’s March meeting. Additionally, a first-round win for incumbent French President Emmanuel Macron helped bolster confidence in the single currency.

In the week ahead, investors will be keenly awaiting the ECB’s interest rate decision on Thursday. A rate hike could see the currency pair soar.

Gareth Monk

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