Pound nosedives after UK mini-budget announcement
Euro dips as Russia calls up additional troops to fight in Ukraine
US Dollar bolstered after hawkish Fed rate hike
Nord Stream gas pipeline suffers severe leakages
GBP/EUR Exchange Rate: UK Announces £45bn Tax Cut Package
The Pound Euro (GBP/EUR) exchange rate tumbled over the past seven days. The Pound (GBP) nosedived on Friday following the reveal of the UK government’s mini budget. Chancellor Kwasi Kwarteng announced a £45bn range of tax cuts.
The Pound fell sharply following the announcement, with investors concerned that borrowing used to fund the cuts could soar to unmanageable levels.
A lack of tangible action from the Bank of England (BoE) also added to the Pound’s woes. Markets were hopeful that the central bank would intervene with an emergency rate hike. Hopes were dashed however after the central bank stated that it would not act until its November meeting.
The market’s reaction to the UK’s economic strategy could continue to weigh on the Pound in the coming week. Any comments from BoE policymakers on the central bank’s approach to the currency’s falls could also prompt movement in GBP.
GBP/USD Exchange Rate: BoE Disappoints with 0.5% Rate Hike
The Pound US Dollar (GBP/USD) exchange rate plummeted over the past week, hitting record-lows amid a poor long-term outlook for the UK. Sterling initially struggled over the past seven days after government borrowing figures printed above-forecast.
The Bank of England’s interest rate decision added to Sterling’s woes on Thursday after a 0.5% rate hike. Markets had largely priced in a 0.75% rate hike leading to disappointment amongst investors. The BoE’s warnings that the country had already entered a recession also weighed on the Pound.
Looking to the week ahead, speeches from various BoE policymakers over the next seven days could cause fluctuations in GBP. The final printing of second quarter GDP growth figures on Friday could pull Sterling lower if growth contracts as forecast.
USD/GBP Exchange Rate: Fed Hikes Rates by 0.75% and Commits to Further Action
The US Dollar Pound (USD/GBP) exchange rate rose to 50-year highs over the past seven days. A hawkish 0.75% rate hike from the Federal Reserve boosted the US Dollar. Signals from the Fed that further aggressive hikes were still to come also pushed USD higher.
A volatile mood in the markets over the past week did prompt some shifts in the currency. Upbeat US PMIs underpinned USD however, preventing any drastic losses.
Tuesday also saw gains for the US Dollar amid positive data releases. The latest durable goods orders and consumer confidence figures both printed better-than-expected, helping to improve the outlook for the US economy.
The latest reading of the PCE price index, the Fed’s preferred measure of inflation, could dampen enthusiasm for the currency if it slips as forecast. Employment data later in the coming seven days could also cause movement in USD.
EUR/USD Exchange Rate: Putin Calls Up 300,000 Reservists to Fight in Ukraine
The Euro US Dollar (EUR/USD) exchange rate slipped over the past week. Further escalation of military efforts in the Ukraine-Russia conflict weighed on the single currency. Wednesday saw Russian President Vladimir Putin announce a ‘partial mobilisation’ of Russian forces.
A drop in Eurozone consumer confidence and third consecutive fall in PMI figures also pulled EUR lower. The figures added to investors’ concerns that the trading bloc could soon face a recession.
A speech from European Central Bank (ECB) President Christine Lagarde did little to quell these fears as she signalled that Eurozone activity could ‘slow substantially’ in the coming months. Significant gas leaks in the Nord Stream pipeline also kept pressure on the Euro.
Looking ahead, a forecast rise in German and Eurozone inflation could bolster EUR off the back of ECB rate hike bets. If unemployment remains at record-lows as forecast on Friday, then it could also lead to increased bets.