Pound Rallies after Mini Budget U-Turn, Euro Bolstered by ECB Rate Hike Bets

  • Pound boosted by UK mini budget U-Turn

  • Euro climbs amid hawkish ECB rhetoric

  • US Dollar bolstered by above-forecast inflation & PPI

  • Russia launches fresh wave of drone and rocket attacks

GBP/EUR Exchange Rate: Kwarteng Sacked as PM Truss Fights for Survival

The Pound Euro (GBP/EUR) exchange rate trended broadly higher over the past seven days. The Pound initially made strong gains amid reports that Prime Minister Liz Truss would be scrapping many elements of her poorly received mini budget.

Political instability in the UK saw Sterling pare its gains however, as Friday saw Truss sack UK Chancellor Kwasi Kwarteng.

The announcement from newly appointed Chancellor Jeremy Hunt that the government would not be pursuing its tax cuts agenda prompted another rally in the Pound at the start of this week. However political uncertainty and confusion over the timeline for the Bank of England’s (BoE) winding down of its quantitative easing programme quickly erased these gains.

Looking ahead, further calls for PM Truss’ resignation could weigh on the currency in the coming days.

GBP/USD Exchange Rate: UK Inflation Hits 10.1% amid Soaring Food Prices

The Pound US Dollar (GBP/USD) exchange rate climbed roughly two cents over the past week despite seeing some notable volatility. Last Wednesday saw an unexpected contraction in August’s UK GDP, heightening recession fears and capping any gains for Sterling.

A return to double-digit inflation has seen the Pound come under fresh selling pressure this week. September’s figures surprised to the upside, printing at 10.1%. The biggest jump in food prices since 1980 added to pressure on UK households amid the country’s cost-of-living crisis.

A predicted drop in September’s retail sales could prompt further losses for the Pound on Friday. Evidence of a further downturn in private sector growth on Monday could also push Sterling lower.

USD/GBP Exchange Rate: Hotter-Than-Expected Inflation Figures add to Fed Rate Hike Bets

The US Dollar Pound (USD/GBP) exchange rates slipped over the past week. The US Dollar initially ticked higher after higher-than-forecast PPI figures on Wednesday. A risk-on mood weighed on the safe-haven ‘Greenback’ however, limiting any significant gains for USD despite hotter-than-expected inflation figures.

USD did find some support from a persistently hawkish stance from the Federal Reserve. Markets continue to price in another 75bps interest rate hike from the Fed. The above-forecast inflation data helping to reinforce these expectations.

Several speeches from Fed policymakers over the next seven days could push USD exchange rates higher if they advocate for further rate hikes. PMIs for the US private sectors could also bolster the currency if they indicate a return to growth.

EUR/USD Exchange Rate: Russian Drone Attacks Hit Kyiv

The Euro US Dollar (EUR/USD) exchange rate rose over the past week. Movement in the Euro (EUR) was largely dominated by developments regarding the Russia-Ukraine conflict. Gains for Ukrainian forces buoyed the single currency, although Russian rocket and drone attacks saw this optimism curbed later in the week.

Hawkish comments from European Central Bank (ECB) officials also supported the single currency’s gains over the past seven days. ECB policymakers Peter Kazimir and Boštjan Vasle both signalled their support for a 75bps interest rate hike at the central bank’s next meeting.

Looking ahead, a forecast slip in German PPI for September on Thursday could dent expectations for ECB rate hikes. A predicted downturn in Eurozone and German private sector performance could also weigh on EUR if Monday’s figures print as forecast.

Gareth Monk

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