Pound Drops as Bailey Signals Dovish Shift, Euro Nosedives amid Signs of Eurozone Recession

  • Bailey hints at gradual action from BoE

  • Johnson pressured by cabinet resignations

  • Powell reaffirms Fed rate hike plans

  • Euro plummets amid Eurozone recession fears

GBP/EUR Exchange Rate: BoE’s Bailey Signals Dovish Approach

The Pound Euro (GBP/EUR) exchange rate initially fell over the past seven days, before recovering some of its losses later on. A cautious stance from Bank of England (BoE) Governor Andrew Bailey weighed upon Sterling. Bailey signalled that the central bank may not ‘act forcefully’ amid signs of a UK economic slowdown. The BoE’s newest policymaker Swati Dhingra also gave a dovish speech, hinting at a ‘gradual approach’ to interest rate hikes.

Despite a poor outlook for the UK economy, an above-forecast rise in service sector growth helped to bolster the Pound against its rivals. These gains were capped, however, amid another downbeat assessment from the BoE. The central bank stated that the UK’s economic outlook had ‘deteriorated materially’.

Looking ahead, a number of speeches from BoE policymakers could prompt further movement in the Pound. A downturn in GDP growth on Wednesday could pull Sterling lower if it adds to the UK’s gloomy economic outlook.

GBP/USD Exchange Rate: Johnson Faces Fresh Resignation Calls

The Pound US Dollar (GBP/USD) exchange rate fell drastically over the past seven days. Brexit-related headwinds weighed upon the Pound amid heightened UK-EU tensions. The UK came under widespread criticism for its plans to scrap parts of the Northern Ireland Protocol. Markets fear that the UK’s actions could trigger a trade war with the EU.

Political pressures may have also weighed upon GBP over the past week. Prime Minister Boris Johnson faced a wave of fresh resentment amongst his own MPs amid multiple new scandals. Tuesday saw prominent cabinet members resign in protest at Johnson’s actions, causing volatility in Sterling amid the prospect of a leadership challenge.

Further developments surrounding Johnson’s premiership may cause unpredictability in the Pound. Meanwhile, the UK’s worsening cost-of-living crisis could push Sterling lower.

USD/GBP Exchange Rate: Powell Reaffirms Fed Rate Hike Plans

The US Dollar Pound (USD/GBP) exchange rate climbed steadily over the past seven days. The safe-haven ‘Greenback’ benefitted from a risk-averse market mood amid fears of a global recession.

Further hawkish signals from Federal Reserve officials also pushed USD higher. Fed Chair Jerome Powell stated that the central bank would act to prevent high inflation from becoming embedded, signalling more aggressive action from the US central bank.

Non Farm Payrolls figures on Friday could push the currency to fresh highs if they indicate continued strength in the labour market. High inflation figures for June could also bolster USD amid further bets on upcoming rate hikes from the Fed.

EUR/USD Exchange Rate: Single Currency Hits 20-Year Low Against US Dollar

The Euro US Dollar (EUR/USD) exchange rate began the past seven days trading within a narrow range. The Euro was supported by expectations of multiple rate hikes from the European Central Bank (ECB). ECB President Christine Lagarde gave further signals that the central bank would raise rates in July and September, and possibly beyond.

Fears of a European recession saw the Euro suffer drastic losses on Tuesday, however, as an impending gas crisis threatens the Eurozone economy. The single currency slumped to a 20-year low against the US Dollar. Losses for EUR may also have been prompted by a sharp slowdown in Eurozone service sector growth, which added to recession fears.

Looking to the next seven days, the ECB’s monetary policy accounts on Thursday could give further hints as to the central bank’s future actions. German inflation figures on Wednesday could limit any gains, however, if they cool in line with preliminary estimates.

Gareth Monk

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