Pound Undermined by UK’s New Energy Price Cap, US Dollar Soars on Powell’s Rate Hike Hints

  • Pound slumps as energy prices set to climb by 80%

  • US Dollar bolstered after Powell’s speech at Jackson Hole

  • Euro climbs amid speculation of further ECB rate hikes

  • Nord Stream 1 shutdown could cause further disruption to energy supplies

GBP/EUR Exchange Rate: Ofgem Announces Energy Costs to Soar by 80%

The Pound Euro (GBP/EUR) exchange rate tumbled over the last seven days as concerns over the UK’s long-term economic prospects continued to grow.

Friday saw the announcement of the UK’s new energy price cap. Regulator Ofgem stated that costs were set to climb by 80% from October. GBP investors fear the massive increase could severely impact household spending.

Industrial action across the UK also weighed on the Pound over the course of the week. Strikes at the container port of Felixstowe came to an end on Sunday with no agreement reached between workers and port authorities.

The selection of a new leader of the Conservative leader and Prime Minister on Monday could cause movement in the Pound. Some certainty in the UK political sphere could help to restore some confidence in the currency.

GBP/USD Exchange Rate: Goldman Sachs Predicts 22% Inflation for UK in 2023

The Pound US Dollar (GBP/USD) exchange rate fell over the past week. The Pound was initially buoyed by a surprise rise in retail sales. Distributive trades figures collected by the Confederation of British Industry (CBI) rose to 37, well above the forecast reading of -7.

Forecasts of even higher inflation likely weighed on the Pound, however. Investment bank Goldman Sachs predicted inflation in the UK could rise to 22% in 2023 amid soaring energy costs.

The prospect of further interest rate hikes from the Bank of England (BoE) to combat high inflation may have lent some support to GBP.

The final reading of August’s services PMI on Monday could help the Pound to recover if the sector grows as forecast. Further BoE rate hike bets could also push GBP higher.

USD/GBP Exchange Rate: Powell’s Jackson Hole Speech Confirms Fed’s Rate Hike Path

The US Dollar Pound (USD/GBP) exchange rate initially slipped in the second half of last week. Downbeat PMI and durable goods figures pushed USD lower amid fears that the Federal Reserve may reign in future interest rate hikes.

A largely risk-off mood lent support to the safe-haven ‘Greenback’, however. As did some above-forecast GDP figures on Thursday.

USD Investors remained cautious ahead of a key speech from Fed Chair Jerome Powell at the Jackson Hole symposium, however. The speech reaffirmed expectations of hawkish action from the central bank.

After pushing to a fresh 20-year high, the US Dollar fell victim to some profit taking at the start of this week as a risk-on mood prevailed.

Looking ahead, employment data on Friday will be keenly watched by investors. Unemployment is forecast to remain low which could bolster Fed rate hike bets. On the other hand, an easing in non farm payrolls figures could see these gains capped.

EUR/USD Exchange Rate: EU Prepares to Make Intervention in Energy Markets

The Euro US Dollar (EUR/USD) exchange rate saw some volatile movements in the past seven days, ultimately managing to make some gains.

Speculation that the European Central Bank (ECB) could press ahead with a 0.75 basis point rate hike at its next meeting lent support to the single currency. An above-forecast rise in Eurozone inflation added further fuel to bets.

Gains for EUR remained capped by the ongoing Eurozone energy crisis and recession fears, however. Gas prices rose to record highs which weighed on the Euro throughout the week. Tuesday saw an easing of pressure however after the EU announced its intention to intervene in the energy market. The news prompted a surge in the Euro.

In Eurozone unemployment remains unchanged at record-lows on Thursday the Euro could climb amid rate hike bets. On the other hand, the single currency could struggle amid the closure of the Nord Stream 1 pipeline.

Gareth Monk

Contact Gareth Monk


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