BoE commits to future aggressive rate hikes
Dovish Fed guidance underwhelms investors
Euro buoyed by ECB speculation
Brexit tensions between UK & EU worsen
GBP/EUR Exchange Rate: BoE Commits to Further Rate Hikes
The Pound Euro (GBP/EUR) exchange rate rebounded in the latter half of last week, rallying after the Bank of England’s (BoE) interest rate decision on Thursday.
Whilst markets were initially underwhelmed by the 0.25% rate hike, the central bank’s commitment to aggressive future action helped to push the currency pair higher.
Sterling then fluctuated through the rest of the week. Speeches from multiple BoE policymakers helped to underpin the currency as they reiterated the central bank’s hawkish stance. GBP tumbled earlier today however after inflation hit a fresh 40-year high.
Looking ahead, a forecast drop to private sector growth on Thursday could pull GBP lower if figures print as forecast. A drop to May’s retail sales could also limit gains for the currency on Friday.
GBP/USD Exchange Rate: Brexit Concerns Weigh on Sterling
After rebounding on Thursday, the Pound US Dollar (GBP/USD) exchange rate shed a good portion of its gains at the end of last week as growth fears for the UK’s economy weighed on GBP.
Widespread rail strikes across the country have since limited gains for GBP this week, with hospitality sector chiefs warning that the strikes could severely dampen profits.
Increased tensions over the Northern Ireland Protocol also generated headwinds for the currency. The UK government increased its efforts to introduce legislation designed to undermine the agreement. Former NI Secretary labelled Prime Minister Boris Johnson’s tactics as ‘Putinesque’.
Further domestic political woes could push Sterling lower in the coming seven days. The UK is set to see two byelections on Thursday. If the government loses the seats then it could pile more pressure on Boris Johnson.
USD/GBP Exchange Rate: Markets Underwhelmed by Dovish Forward Fed Guidance
The US Dollar Pound (GBP) exchange rate sharply in the second half of last week. The US Dollar recovered some of its losses as the week went on, however. The Federal Reserve’s interest rate decision failed to boost the currency on Wednesday.
Markets had largely priced in the 75bps hike, but less hawkish than expected forward guidance from the Fed pulled USD lower.
Speeches from multiple Fed officials may have helped the currency to rebound, however. Policymakers reaffirmed the central bank’s commitment to further rate hikes. A poll conducted by Reuters found that a 0.75% rate hike from the Fed was highly likely. The safe-haven ‘Greenback’ also benefitted from fragile risk appetite in the past seven days.
Multiple testimonies from Fed Chair Jerome Powell could push USD even higher over the coming week. On the other hand, disappointing US PMI releases could limit gains for the currency and harm the country’s long-term outlook.
EUR/USD Exchange Rate: Eurozone Inflation Hits Record High
The Euro US Dollar (EUR/USD) exchange rate climbed higher last week amid hawkish European Central Bank (ECB) rate hike bets.
ECB President Christine Lagarde gave speeches on Wednesday and Monday that reaffirmed the central bank’s commitment to raising interest rates. Additionally, policymakers such as Peter Kazimir and Oli Rehn confirmed their desire to continue with rate hikes in the coming months.
The Euro likely saw further gains after Eurozone inflation figures printed at 8.1% on Friday. The rate came in at more than four times the ECB’s target. Soaring energy prices and higher food costs were though to the main drivers of the increase.
Looking ahead to the next seven days, a fall to German and Eurozone private sector growth on Thursday could limit gains for the single currency.