Pound Volatile amid Potential Challenge to PM Johnson’s Leadership, Euro Boosted by ECB Rate Hike Bets

 

  • PM Boris Johnson faces prospect of leadership contest
  • Drop to PCE price index limits Fed rate hike bets
  • Hawkish ECB officials help bolster Euro
  • EU agrees to partial embargo on Russian oil

 

GBP/EUR Exchange Rate: Fallout of ‘Partygate’ Stokes UK Political Uncertainty

The Pound Euro exchange rate remained volatile over the past seven days. The publication of Sue Gray’s ‘partygate’ report likely dented confidence in the currency, as well as PM Boris Johnson’s premiership. The report highlighted failures of leadership at the top levels of the UK government.

The possibility of a leadership contest may have further weighed upon Sterling throughout the past week.

Reports have indicated that the number of no-confidence letters has increased in recent weeks, with multiple Conservative MPs signalling their displeasure at the PM’s actions.

Looking ahead, a challenge to Johnson’s leadership could potentially push the Pound lower. Further UK-EU tensions could also pull the exchange rate down.

GBP/USD Exchange Rate: Sunak Announces Household Support

The announcement of economic support for UK households from Chancellor Rishi Sunak may have helped to underpin GBP over the past week. Sunak unveiled a £15bn fiscal support packaged aimed at easing the country’s cost-of-living crisis.

While the package was well received by households, a poor reception from UK businesses could have limited any gains.

Fears of further tensions between the UK & EU over the Northern Ireland Protocol likely also kept the currency pair unpredictable. UK Foreign Secretary Liz Truss continued with threats to scrap elements of the agreement through legislation.

A forecast fall to UK retail sales on Tuesday could pull the Pound even lower if figures print as forecast. Additionally, a confimed drop to growth in the country’s services sector could also harm the exchange rate’s prospects.

USD/GBP Exchange Rate: PCE Index Drop Limits Fed Rate Hike Bets

A risk-on mood limited gains for the US Dollar Pound exchange rate over the past seven days.

An above-forecast contraction to US GDP growth also likely pulled the currency pair lower on Thursday. A wider trade gap was highlighted as a primary cause as consumers continued spending.

The release of the latest core PCE price index on Friday may have also prompted a drop in the US Dollar at the end of last week.

The index, the Federal Reserve’s preferred measure of inflation, fell from 5.2% to 4.9% in April. The figures may have caused investors to pare back their bets on further interest rate hikes from the Fed.

Looking to the next seven days, Friday’s employment figures could help push the USD/GBP rate higher should they print as forecast. An underwhelming ISM non-manufacturing PMI could limit any gains however.

EUR/USD Exchange Rate: ECB Officials Remain Hawkish ahead of Interest Rate Decision

The Euro US Dollar exchange rate pushed higher last week. A hawkish stance from European Central Bank (ECB) officials helping to bolster the currency pair.

Economists widely expect that the central bank will raise interest rates at their July meeting. ECB President Christine Lagarde signalled that it was ‘appropriate’ for the ECB’s monetary policy to attempt to tackle soaring inflation.

A higher than forecast rise to Eurozone inflation saw the currency pair dip on Tuesday, however. Fears that high inflation and slow growth could prompt a Eurozone recession may have spooked investors. Energy security fears may have also limited gains for the currency pair as EU member states agreed on a partial embargo on Russian oil.

A drop to Eurozone and German service sector growth could harm the currency pair’s upward momentum on Friday. An expected uptick to Eurozone retail sales may help limit these losses, however. Wednesday’s GDP growth figures for the Eurozone are forecast to remain largely unchanged, which could pull the pair lower amid recession fears.

Gareth Monk

Contact Gareth Monk


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