Pound uncertain as UK leadership contest begins
US Dollar hits 20-year high amid Fed rate hike bets
Euro tumbles as energy concerns prompt renewed recession fears
Will rise to US inflation push USD even higher?
GBP/EUR Exchange Rate: PM Johnson Tenders Resignation
The Pound Euro (GBP/EUR) exchange rate made steady gains over the past week amid political turmoil in the UK. The Pound struggled on Wednesday as pressure mounted on Prime Minister Boris Johnson amid a flurry of government resignations.
Sterling saw a boost the following day as Johnson subsequently announced his resignation as it helped to quell weeks of uncertainty over his future. The prospect of a lengthy contest to select Johnson’s successor may have capped further gains.
GBP may have also seen its prospects dented by talk of wide-ranging tax cuts from many of the candidates. The rhetoric added fuel to inflationary fears.
Looking ahead to the next seven days, the leadership contest could create additional uncertainty in the currency. The field has been narrowed to 8 candidates with a new PM expected by 5th September.
GBP/USD Exchange Rate: May’s GDP Figures Beat Forecasts
The Pound US Dollar (GBP/USD) exchange rate fell to its lowest point since March 2020 over the past seven days. Sterling initially saw some gains amid hawkish rhetoric from Bank of England (BoE) policymakers.
In a speech on Thursday, BoE member Catherine Mann signalled a preference for ‘front-loading’ rate hikes. The central bank’s Governor Andrew Bailey reaffirmed this stance in multiple speeches, stating that there were ‘ifs or buts’ when it came to taming inflation.
The Pound hit a two-year low against the US Dollar (USD) on Tuesday, as figures from the British Retail Consortium (BRC) reported another slump in retail sales. An unexpected rise to May’s GDP figures on Wednesday helped Sterling to recover some of its losses, however.
Looking to the coming seven days, employment figures on Tuesday could bolster the Pound if earning figures rise as forecast. Additionally, inflation in June is predicted to remain high, potentially boosting BoE rate hike bets.
USD/GBP Exchange Rate: Recession Fears see USD Soar
The US Dollar Pound (USD/GBP) exchange rate made strong gains over the past seven days. The US Dollar Index reached a 20-year high amid a largely risk-off mood.
Demand for the safe haven ‘Greenback’ surged amid fears of a global recession. These concerns were prompted by fears of a European energy crisis, fresh Covid-19 cases in China, and soaring global inflation.
USD also saw a boost off the back of hawkish rhetoric from the Federal Reserve in the past seven days. Multiple Fed policymakers reiterated their support for an additional 0.75% interest rate hike at the central bank’s next meeting.
Friday’s robust employment figures also helped to shore up markets expectations of further rate hikes.
Looking ahead, a forecast rise to inflation on Wednesday could push USD even higher. A predicted recovery in June’s retail sales could also bolster the currency.
EUR/USD Exchange Rate: Gas Supply Cut-Off Weighs on Single Currency
The Euro US Dollar (EUR/USD) exchange rate came within a whisker of parity in recent days. Fears of an imminent recession weighed heavy on the single currency.
The shutdown of the Nord Stream 1 gas pipeline for annual maintenance work was thought to have largely contributed to EUR’s recent poor performance. German officials remain concerned that the gas supply from Russia may be kept off in response to Western sanctions.
A mixed stance from the European Central Bank (ECB) likely dented investor confidence in the single currency. Markets remained unsure as to whether the ECB would implement a 0.25% or 0.5% rate hike.
Looking ahead, a rise to Eurozone inflation on Tuesday could push EUR higher if investors see it as increasing chances of aggressive ECB action.