Pound Slides as Retail Sales Figures Surprise to Downside, US Dollar Leaps as Investors await Fed Interest Rate Decision

  • Pound tumbles after drastic slump in August’s retail sales figures

  • Euro under pressure as war in Ukraine looks set to drag on

  • US Dollar soars ahead of Fed interest rate decision

  • Russia announces ‘partial mobilisiation’ of armed forces as Ukrainian forces gain ground

GBP/EUR Exchange Rate: Widespread Strikes Set to Hit UK in Coming Weeks

The Pound Euro (GBP/EUR) exchange rate fell over the past seven days. Bets on the Pound were subdued amid the UK’s period of mourning following the death of Queen Elizabeth II. A bank holiday on Monday saw UK markets closed which also kept enthusiasm for the currency dampened.

The announcement of further widespread industrial action also weighed on the Pound. Workers from multiple container ports, the UK rail sector, and HGV drivers all announced plans to strike in the coming weeks.

Looking ahead, a return to normal market conditions could help to restore some confidence in Sterling. Additionally, the reveal of the UK government’s ‘mini-budget’ on Friday may cause movement in the Pound.

GBP/USD Exchange Rate: Pair Falls to 37-Year Low as UK Retail Sales Tumble

The Pound US Dollar (GBP/USD) exchange fell to a 37-year low on Friday, trading close to that level for the remainder of the past seven days. A pessimistic outlook for the UK economy weighed on the Pound throughout the past week. A drastic slump in August’s retail sales figures on Friday heightened fears that the UK may already be in a recession.

Sterling found some support from bets by investors on further interest rate hikes from the Bank of England (BoE), however. Above-forecast wage growth and a rise in core inflation helped support prospects of a 0.75% rate hike from the central bank.

Investors will keenly be awaiting the BoE’s interest rate decision on Thursday, with an above-forecast hike set to push GBP higher. Friday’s drop in service sector output could dampen confidence in the currency, however.

USD/GBP Exchange Rate: Red Hot Inflation Intensifies Fed Rate Hike Bets

The US Dollar Pound (GBP/USD) exchange rate climbed to a 37-year high over the past seven days. Hotter than expected inflation figures cemented Federal Reserve rate hike bets and saw USD soar. Markets began to price in the possibility of a drastic full percentage point hike, further bolstering the currency.

A surprise rise in August’s retail sales figures also helped the US Dollar to climb over the past week. Sales grew by 0.3% as opposed to forecasts of no change in the retail sector. The safe-haven ‘Greenback’ also benefitted from a risk-off trading sentiment as fears of a global recession intensified.

Looking to the coming week, the Fed’s interest rate decision on Wednesday evening could see USD soar if they hike rates as aggressively as anticipated. A drop to service sector growth on Friday could cap gains for the currency, however.

EUR/USD Exchange Rate: War in Ukraine Dents Confidence in EUR

The Euro US Dollar (EUR/USD) exchange rate remained volatile over much of the past week, before tumbling on Wednesday. Surprise gains for Ukraine’s forces boosted confidence in the single currency initially. Following Russia’s announcement that it would be committing to a ‘partial mobilisation’ in the conflict saw EUR slump on Wednesday.

Comments from European Central Bank (ECB) officials also prompted mixed movements in the Euro. The week began with dovish comments from policymaker Philip Lane signalling smaller rate hikes that pulled EUR lower. Comments from ECB Vice President Luis de Guindos bolstered the single currency however after he stated that the central bank must prioritise tackling inflation.

A drop in German business confidence could weigh on the single currency as investors remain concerned over a potential recession in the Eurozone.

Gareth Monk

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