Pound Climbs as Inflation Strikes 30-Year High, Euro Hits Multi-Year Lows after ECB Leaves Interest Rates Unchanged

  • Russia prepares for fresh offensive in Eastern Ukraine
  • Pound soars as inflation skyrockets
  • Euro slumps as ECB leaves rates unchanged
  • US Dollar bolstered by hawkish Fedspeak

GBP/EUR Exchange Rate: Johnson Fined over Partygate Scandal

The GBP/EUR exchange rate fluctuated through the past seven days. The pair firmed in the latter half of last week as the Pound benefitted from a market correction.

The Pound saw headwinds as the week went on however. The ‘partygate’ saga continued to dent confidence in Prime Minister Boris Johnson and his government, as the Metropolitan Police issued fines to both Johnson and Chancellor Rishi Sunak. Johnson has seen renewed calls for his resignation from opposition parties.

Looking ahead for the GBP/EUR currency pair, Russia’s renewed push into the Donbas region of Ukraine could continue to infuse volatility in the pairing. The Pound could also be pulled lower should a parliamentary investigation into Johnson go ahead.

GBP/USD Exchange Rate: UK Inflation Hits Three-Decade High

Above-forecast inflation figures for the UK saw the Pound US Dollar exchange rate initially leap over the past seven days. The rate of inflation hit a 30-year high amid the UK’s cost-of-living crisis. The rise was prompted by the soaring prices of groceries, fuel, and energy.

Thin trading conditions over the long Easter Weekend as well as growing doubts over a May interest rate hike from the Bank of England (BoE) then injected fresh volatility in the GBP/USD exchange rate at the start of this week.

Looking to the next seven days for GBP/USD, speeches from BoE policymakers including Governor Andrew Bailey are likely to prompt movement in the Pound. The central bank’s stance has been cautious in recent weeks, but any hawkish signals could push the currency pair higher.

USD/GBP Exchange Rate: Fed Gives Further Hawkish Signals

The USD/GBP exchange rate fell sharply following above-forecast UK inflation on Wednesday, but went on to recover these losses in the following days. US Consumer sentiment figures surprised to the upside as Americans showed continued optimism about wage growth and job prospects.

Continually hawkish Fed-talk also helped bolster the US Dollar over the past seven days. Speaking on Tuesday, Fed policymaker James Bullard reiterated his view that interest rates should reach 3.5% by the end of 2022. Bullard went on to explain how such a move was necessary in order to combat 40-year high inflation.

The USD/GBP currency pair could continue to make gains this week should speeches from Fed policymakers remain hawkish. Investors will be most keenly focused on multiple speeches from Fed Chair Jerome Powell on Thursday.

EUR/USD Exchange Rate: ECB Leaves Interest Rates Unchanged

The EUR/USD exchange rate shed many of its prior gains over the past seven days as the Russia-Ukraine conflict continued to weigh upon the Euro.

Hostilities between the two sides continued to escalate as Russia prepared for a fresh offensive in the East of Ukraine. Reports on Wednesday indicated that Ukrainian forces had sunk the Russian cruiser ‘Moskva’, whilst Russia continued their push into the city of Mariupol.

EUR/USD plummeted following the European Central Bank’s (ECB) interest rate decision. The ECB chose to leave its monetary policy unchanged despite soaring inflation as a result of the war in Ukraine. The Euro hit multi-year lows on Thursday as a result.

Looking ahead, Eurozone inflation figures this Thursday could push the EUR/USD pair higher if it increases expectations of future action from the ECB. On the other hand, a forecast fall to Eurozone and German private sector output in April could pull the Euro lower.

Gareth Monk

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