Pound Falls as UK Recession Fears Intensify, Euro Bolstered as Lagarde Hints at Summer 2022 Rate Hikes From ECB

  • UK’s poor long-term outlook hampers Pound
  • Threat of UK-EU trade war looms
  • ECB unexpectedly signals imminent rate hike
  • Fed continues to hint at 0.5% rate hikes at future meetings

GBP/EUR Exchange Rate: Pound Rises despite Brexit Concerns

The Pound Euro exchange rate climbed higher over the past seven days. Uncertainty within the Eurozone surrounding the war in Ukraine likely helped the currency pair to tick upward. Both Sweden and Finland stated that they would begin the process to formally join the NATO alliance, which solicited hostile rhetoric from the Kremlin.

The gains for the GBP/EUR pair came despite fresh tensions between the UK and EU. The ramping-up of rhetoric came after UK Foreign Secretary threatened unilateral action over the Northern Ireland Protocol. Officials in Brussels stated that they were ‘flabbergasted’ at the move and that the plans were ‘very risky, even irresponsible’.

Looking ahead for the Pound Euro pair, further negotiations between the UK and EU could push Sterling lower. The threat of a potential trade war with the EU could further contribute to the pessimistic outlook for the UK’s economy.

GBP/USD Exchange Rate: Volatile on Mixed UK Data

The Pound US Dollar exchange rate saw some volatility over the past seven days. The pairing began on the back foot after the UK’s economy unexpectedly shrank in March, as shown in figures on Thursday. The contraction heightened fears of an early recession for the country amid the ongoing cost-of-living crisis.

Tuesday saw the pairing recoup some of its earlier losses, however, after better-than-forecast employment figures. UK unemployment fell to its lowest point in 48 years, and earnings (including bonuses) rose far above forecasts. The optimism was tempered, however, as regular pay still lags well behind inflation.

Looking to the next seven days, the Confederation of British Industry’s (CBI) industrial trends orders are forecast to rise on Thursday, which could boost the GBP/USD pair. However, an expected decline in UK retail sales on Friday could push GBP lower.

USD/GBP Exchange Rate: US Dollar Wavers as Market Mood Shifts

The US Dollar Pound exchange rate remained changeable over the past seven days. Wednesday saw higher-than-expected US inflation figures, which likely helped the pair to climb. Whilst PPI figures fell on Thursday, the data continued to raise expectations of future rate hikes from the Federal Reserve.

However, a shifting market mood and a larger-than-forecast fall in consumer sentiment created some turbulence for the US Dollar, causing USD/GBP to fluctuate.

Looking to the coming week, PMIs for the US private sectors on Tuesday could prompt movement in the Pound US Dollar exchange rate. However, investors will be most keenly awaiting the release of the Federal Open Market Committee (FOMC) minutes on Wednesday, which could give further insight into the Fed’s policy plans.

EUR/USD Exchange Rate: Euro Rallies on Hawkish ECB

The Euro US Dollar exchange rate began the last seven days on a downward trend after German inflation figures came in well below forecast. A widening of the Eurozone trade deficit on Monday may have also contributed to the fall.

The pair’s recovery was aided by a surprisingly hawkish stance from the European Central Bank (ECB). A speech from ECB President Christine Lagarde signalled that a summer 2022 rate hike was likely. Strong GDP growth figures for the Eurozone on Tuesday may also have helped to lift the EUR/USD pair.

Looking ahead, the release of the ECB’s monetary policy meeting accounts on Thursday could prompt some activity in the pairing. Additionally, May’s flash PMIs on Tuesday could trigger some movement.

Gareth Monk

Contact Gareth Monk

Do Not Sell My Personal Information