Pound Volatile on Mixed UK Data, US Dollar Rocked by Weaker-than-Expected Inflation Release

  • Pound gains amid fresh BoE rate hike bets.

  • Euro slumps as recession fears increase.

  • US Dollar dips as inflation slows.

  • Soaring energy prices continue to stoke global recession fears.

GBP/EUR Exchange Rate: Pound Rocked by Mixed Data

The Pound Euro (GBP/EUR) exchange rate closed last week’s session on the back foot. Sterling stumbling after the release of the latest UK GDP figures on Friday. Despite a smaller-than-expected contraction in second growth, the data prompted warnings that the UK could be at risk of slipping into a recession earlier than previously thought.

The first half of this week has seen Sterling trend broadly higher. Stronger-than-expected wage growth figures on Tuesday helped to push the Pound higher as it bolstered of Bank of England (BoE) rate hike bets.

These gains were extended with the publication of Wednesday’s above-forecast inflation figures. BoE rate hike bets being reinforced as inflation soared to a new 40-year high of 10.1% in July.

Looking to the coming week, retail sales figures on Friday could reverse some of the Pound’s gains if they fall as forecast. Tuesday’s PMIs could also prompt movement in the currency.

GBP/USD Exchange Rate: Pound Wavers as Annual Energy Bills Forecast to Hit £4200

The Pound US Dollar (GBP/USD) exchange rate slipped in the past week. Sterling’s gains were likely limited by fears over the UK’s cost-of-living crisis. Fresh forecasts from Cornwall Insight warned that UK annual household energy bills could surpass £4200 by January.

The ongoing uncertainty surrounding the Conservative leadership contest likely added to cost-of-living fears.

With no action forthcoming from the UK government, analysts looked to Liz Truss and Rishi Sunak for how they might address soaring bills if they take power on 5 September. The announcement of further industrial action may have also weighed on the currency.

Looking ahead, any further predictions that costs for UK households could climb higher are likely to weigh on the Pound. Additionally, the announcement of any further strikes could add to fears over the UK’s ‘summer of discontent’.

USD/GBP Exchange Rate: US Dollar Stumbles as Inflation Cools

The US Dollar Pound (USD/GBP) exchange rate ended last week close to its opening rate. The US Dollar (USD) initially fell after inflation figures for July printed below expectations. Analysts hoped that the drop to 8.5% was evidence that US inflation may have peaked. A slip in PPI figures on Thursday had a similar effect on the currency.

USD exchange rates bounced back amid a subsequent souring of market risk appetite, amid fresh fears of a global economic slowdown. An improvement to US consumer morale may have also helped to underpin the currency.

The US Dollar then extended its recovery in the first half of this week. Federal Reserve rate hike bets acting as the main pillar of support for the currency.

The release of the latest FOMC minutes on Wednesday evening could push the US Dollar higher if they reinforce the Fed’s hawkish stance. Another uptick in jobless claims on Thursday could limit any gains, however.

EUR/USD Exchange Rate: Euro Undermined by Recession Fears

The Euro US Dollar (EUR/USD) exchange rate fell over the past week. Fears of a recession in the Eurozone likely weighed on the single currency.

Reports indicated that Germany, the trading bloc’s largest member, could see losses of around €265bn by 2030 due to the impact of the Russia-Ukraine war. Gas supplies to the continent from Russia also continued to be limited.

A resurgent US Dollar also sapped some strength from the Euro last week. A slump in economic sentiment in Germany also weighed on EUR exchange rates.

The Eurozone’s final CPI reading inflation could underpin the single currency if it confirms inflation in the bloc rose as forecast last month. The release of the Eurozone’s latest PMI figures could drive a EUR recovery early next week if they report a rebound in private sector activity in the bloc this month.

Gareth Monk

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