Pound Drops as Investors Pare Back BoE Rate Hike Bets, US Dollar Soars as Powell States 0.5% Hike is ‘On the Table’

  • Russia ramps up nuclear rhetoric
  • Pound drops as parliament set to investigate Johnson
  • US Dollar soars as Powell signals 0.5% rate hike
  • Euro struggles as Ukraine-Russia conflict hampers private sectors

GBP/EUR Exchange Rate: Johnson Referred for Parliamentary Investigation

The Pound Euro exchange rate steadily fell over the last seven days. The UK’s ‘partygate’ scandal continued to undermine confidence in PM Johnson’s premiership, and likely weighed on Sterling. MPs from all parties voted on Thursday to recommend Johnson to parliament for an investigation into his conduct.

Major losses for the currency pair may have been limited as the Ukraine-Russia conflict undermined the Euro. There were fears that the war could spread to Moldova after the Russian-occupied breakaway region of Transnistria was hit by several explosions. A ramping up of Russia’s nuclear rhetoric may have also kept pressure on the Euro.

Looking ahead, further revelations over Johnson’s actions could further dent confidence in the Pound. The war in Ukraine could also continue to affect global risk appetite.

GBP/USD Exchange Rate: Weak Data Prompts Gloomy UK Outlook

Weaker than forecast data releases and a poor forward outlook for the UK economy saw the Pound US Dollar exchange rate fall over the past week. On Friday, retail sales and confidence figures came in well below forecasts and likely caused a sharp drop to GBP. Additionally, a downturn in UK private sector output also caused concerns over the UK’s long-term prospects.

The paring back of Bank of England (BoE) rate hike expectations may also have pulled the currency pair lower. Markets are continuing to price in a hike at the central bank’s May meeting. Cautious language from BoE officials has limited market confidence for a more aggressive rate hike however.

Looking ahead to the next seven days, a speech from BoE Governor Andrew Bailey on Thursday could prompt movement in GBP depending on his stance on monetary policy. A forecast uptick to UK manufacturing growth on Tuesday could help push Sterling higher however.

USD/GBP Exchange Rate: Risk-Off Trading Plentiful amid Fears of China Slowdown

The US Dollar Pound exchange rate steadily climbed over the past week. USD remained supported by a good deal of risk-on trading and expectations of an aggressive rate hike from the Federal Reserve next week. Speaking on Thursday, Fed Chair Jerome Powell stated that a 0.5% rate hike was ‘on the table’ for the central bank’s May meeting.

Demand for the safe-haven ‘Greenback’ strengthened as concerns over global growth slowdown increased. Mass Covid-19 testing in Beijing spooked the markets amid fears that the city could impose the same restrictions as those seen in Shanghai.

Looking ahead for USD, the Fed’s interest rate decision could see the pair soar should the central bank commit to an aggressive rate hike.

EUR/USD Exchange Rate: Ukraine-Russia Conflict Continues to Hamper Eurozone

The Euro US Dollar exchange rate continued to fall over the past seven days despite hawkish comments from European Central Bank (ECB) policymakers. Above-forecast German PPI figures did bolster the pair initially, as well as a rise to Eurozone industrial production.

A drop to Eurozone and German private sector growth on Friday likely weighed on the single currency however. The war in Ukraine affected raw material supplies as well as leading to soaring costs for businesses.

Looking ahead, an uptick to Eurozone inflation on Friday could bolster the pair should it increase expectations of a rate hike from the ECB. The central bank’s non-monetary policy meeting on Wednesday could also prompt movement in Euro US Dollar exchange rate.

Gareth Monk

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