Pound Rocked by BoE Bond Purchase Uncertainty, US Dollar Bolstered by Upbeat Payroll Release

GBP/EUR Exchange Rate: Pound Fluctuates on BoE Bond Purchase Uncertainty

The Pound Euro exchange rate fluctuated over the past week, with much of this volatility centred on uncertainty over the Bank of England’s (BoE) emergency bond purchases.

After widening its bond purchases on both Monday and Tuesday this week, BoE Governor Andrew Bailey confirmed the bank would conclude its support for the UK bond market at the end of this week as initially planned.

The announcement prompted a sharp drop in the Pound, particularly after the BoE earlier warned the sharp bond selloff poses a ‘material risk’ to financial stability.

However subsequent reports have suggested the BoE may in fact extend its purchases, which helped Sterling recoup the majority of these losses.

GBP/USD Exchange Rate: Pound Tumbles Following UK Credit Rating Warning

The Pound US Dollar exchange rate fell by around three cents in the second half of last week.

A significant part of this selling pressure stemmed from a warning that the UK is at risk of a credit ratings downgrade after Fitch joined S&P in cutting its outlook for the UK’s credit rating from ‘stable’ to negative’.

Trade in the GBP/USD exchange rate has proven volatile so far this week. This is primarily linked to BoE bond purchase uncertainty but also some mixed UK data.

While the UK’s latest jobs figures reported a surprise drop in unemployment and stronger-than-expected wage growth. August’s GDP release reported a shock contraction of growth.

The publication of the UK consumer price index will be the highlight of next week’s GBP data calendar. Will another uptick in domestic inflation stoke concerns over the UK’s cost of living crisis?

USD/GBP Exchange Rate: US Dollar Firms as Payrolls Impress

The US Dollar enjoyed strong support through the second half of last week. USD demand being buoyed by risk-off flows as well as the latest US payroll release.

Data showing that the US economy added more jobs than expected in September sent the US Dollar soaring on Friday. The stronger-than-expected figures bolstering expectations the Federal Reserve will continue to raise interest rates through to the end of 2022.

So far this week the ‘Greenback’ has been mostly subdued. An extended weekend and a pullback in US Treasury yields capping movement in the currency.

Looking ahead, the spotlight in the second half of this week is likely to be on the latest US inflation figures. September’s CPI release could see the US Dollar resume its rally if US inflation prints above expectations.

EUR/USD Exchange Rate: Euro Dented by Ukraine Uncertainty

The Euro US Dollar exchange rates trended broadly lower over the past week. Concerns over the war in Ukraine have been a key source of weakness for the single currency.

EUR investors fear an escalation of the conflict following an attack on the only bridge linking Russia and Crimea could place even more pressure on the Eurozone economy.

Also weighing on the Euro were some lacklustre German data releases, with industrial activity and retail sales both underperforming in August.

Fresh concerns over Europe’s energy security further undermined EUR sentiment at the start of this week.

Looking ahead, the Euro is likely to remain sensitive to Ukraine developments. While a speech from European Central Bank (ECB) President Christine Lagarde could also prove fresh impetus for the currency.

Matthew Andrews

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