Pound Muted amid Economic Concerns, US Dollar Holds Near Highs ahead of Fed

GBP/EUR Exchange Rate: Pound Undermined by Economic Concerns

The Pound Euro exchange rate rose off a one-month low last week as Sterling attracted some dip buying.

GBP/EUR’s rise was unsteady, however, as both currencies faced headwinds. Rising company insolvencies in the UK added to the bleak outlook for the country’s economy, while German consumer confidence hit an all-time low.

This week, GBP/EUR has slipped again. Worries about the UK economy and the cost-of-living crisis continued to pressure the Pound early in the week. Then the Bank of England (BoE) decision saw the Pound plunge as the BoE presented a gloomy economic outlook for the rest of 2022 and into 2023.

Turning to the week ahead, the BoE rate decision and forecast could continue to cause movement as markets digest the news. The UK local elections could also have an impact. If the Conservatives lose a significant amount of seats then Prime Minister Boris Johnson may come under renewed pressure to resign, increasing political uncertainty.

GBP/USD Exchange Rate: Pound Wavers amid Shifting Risk Appetite

The Pound US Dollar exchange rate fell to a near two-year low last week as worries about the UK economy saw traders pare back BoE rate hike bets.

While economists rightly expected a rate rise this week, they were also concerned that the UK’s economic headwinds could cause the BoE to rein in its forward guidance.

An upbeat market mood supported the risk-sensitive Pound over the safe-haven US Dollar towards the end of the week, helping GBP/USD recover. However, the pair slipped as a flash crash in European markets, triggered by a trader error, saw market sentiment sour.

The BoE’s dovish outlook today saw GBP/USD plunge, with the UK economic outlook bleaker than ever.

A lack of market-moving UK data in the coming week may leave GBP/USD to trade on risk sentiment and domestic economic news.

USD/GBP Exchange Rate: US Dollar Holds Strong ahead of Fed Decision

The US Dollar Pound exchange rate hit a 22-month high last week as expectations of a half-percentage-point rate rise from the Fed continue to underpin the ‘Greenback’.

The US Dollar then suffered some profit-taking towards the end of the week, with USD investors seeking to cash in on the currency’s strength. In addition, the core PCE price index – the Fed’s preferred measure of inflation – unexpectedly eased, putting some pressure on the ‘Greenback’.

The Federal Reserve interest rate decision caused some rocky movement as markets were a little disappointed that the Fed’s rhetoric wasn’t more hawkish.

USD/GBP investors will be looking ahead to the latest US unemployment rate and payrolls data on Friday, along with the US CPI next Wednesday. Economists expect positive results, so USD/GBP could stay strong.

EUR/USD Exchange Rate: Euro Languishes at Five-Year Lows amid Ukraine Crisis

The Euro hit a fresh five-year low against the US Dollar last week as Russia’s invasion of Ukraine continues to put significant pressure on the Eurozone economy.

Germany’s plunge in consumer confidence was in part due to households’ fears of the impact of the war. Meanwhile, Russia cut off gas supplies to Bulgaria and Poland after the two EU countries refused to pay in Russian Roubles. Surging energy costs and energy insecurity in Europe are major economic risks.

Troubling Eurozone data has since kept EUR/USD suppressed. On Friday, rising inflation and slowing GDP growth stoked stagflation fears. This week, an unexpected contraction in German retail sales and a larger-than-forecast drop in Eurozone economic sentiment have both weighed on EUR.

Developments in the Russia-Ukraine war could continue to pressure the single currency over the next week. In addition, Germany’s latest ZEW economic sentiment index will likely also cause some movement. Could a gloomy outlook see EUR/USD slip further?

Samuel Birnie

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