Pound Regains Losses as Johnson Wins Confidence Vote, US Dollar Boosted ahead of Fed Interest Rate Decision

  • Pound firms as Boris Johnson wins vote of no confidence.

  • US Dollar gains on strong payroll figures.

  • Euro bolstered by ECB rate hike expectations

  • Slowing US inflation to weaken the US Dollar?

GBP/EUR Exchange Rate: Johnson Survives Confidence Vote

The Pound Euro (GBP/EUR) exchange rate initially fell ahead of the UK’s Jubilee bank holiday. A poor outlook for the UK economy’s forward outlook likely contributed a drop in Sterling sentiment.

Uncertainty surrounding PM Boris Johnson’s future may have also weakened the Pound last week. Parliament returned on the Monday to a vote of no confidence in the Johnson won the vote which likely helped the Pound to bounce back this week.

Looking ahead, further challenges to Johnson’s leadership could continue to dominate movement in the GBP/EUR exchange rate.

If Johnson can shore up his leadership, then it could help to bolster GBP/EUR. The promise of further financial stimulus from the PM could push the Pound lower however amid increased inflation concerns.

GBP/USD Exchange Rate: Soaring Bills Dampen Retail Spending

The Pound US Dollar (GBP/USD) exchange rate saw volatile movement over the past seven days. Initially Sterling was pulled lower after some disappointing data releases. Wednesday’s PMI for the UK manufacturing sector saw growth fall to a 16-month low in May. Additionally, expectations for growth from British businesses fell to fresh lows.

After recovering some of its losses, the pair fluctuated on Tuesday, initially falling following a disappointing outlook for the UK’s retail and services sectors. Retail sales fell by 1.1% in May as the country’s cost-of-living crisis continued to limit household spending.

However, an upwardly revised services PMI may have helped the GBP/USD exchange rate to rebound by the end of Tuesday’s European trading session.

Looking to the next seven days, an uptick to UK GDP figures could help the Pound US Dollar exchange rate trend higher. UK employment figures on Tuesday could also buoy Sterling.

USD/GBP Exchange Rate: Tight Labour Market Prompts Fed Rate Hike Bets

The US Dollar Pound (GBP/USD) exchange rates fluctuated over the past seven days. Robust employment figures on Friday gave further credence to this stance, with unemployment remaining at 3.6%. Non farm payrolls for May also rose well above forecasts.

The upbeat figures lead USD investors to increase their bets on decisive action from the Federal Reserve amid a tight labour market. Additional

Further hawkish signals from Fed policymakers also helped to boost the USD/GBP exchange rate. Speaking on Friday, Fed board member Loretta Mester stated that 0.5% rate hikes would need to continue unless she saw ‘compelling evidence’ against it. A return of global risk appetite did go some way to dampening gains for the pair, however.

US Core CPI figures on Friday are expected to report a slowdown in inflation, with the US Dollar potentially falling if it bolsters suggestions the Fed might pause its current tightening cycle after the summer.

EUR/USD Exchange Rate: ECB Rate Hikes Expectations Buoy Euro Demand

The Euro US Dollar (EUR/USD) began the week climbing higher amid renewed indications that the European Central Bank (ECB) is set to raise interest rates in the coming months.

Unemployment figures for the Eurozone printed at a record low on Wednesday and saw EUR/USD climb. Hawkish comments from ECB board members also helped to bolster investor prospects of upcoming rate hikes.

Poor retail sales figures on Friday saw the pair shed some of these gains, however. The drop to April’s sales was greater than expected as food prices in the trading bloc continued to climb. An above-forecast to the Eurozone’s services sector on Friday also likely contributed to pairs fall.

Investors will be most keenly focused on Thursday’s interest rate decision from the ECB. Whilst the central bank isn’t expected to hike rates, any signals of further rate hikes could bolster the EUR/USD pair.

Gareth Monk

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