Pound Strengthens as Sunak Crowned UK PM, US Dollar Slides as Reports Hint at Fed Rate Hike Slowdown

  • Pound fluctuates amid UK political uncertainty.

  • Euro bolstered by ECB interest rate hike bets.

  • US Dollar slumps as reports hint at Fed rate hike slowdown.

  • Rishi Sunak appointed as UK’s next Prime Minister.

GBP/EUR Exchange Rate: Sunak Appointed as UK PM

The Pound Euro (GBP/EUR) exchange rate trended broadly higher over the past seven days. The Pound (GBP) initially fell as Liz Truss faced increasing calls to resign as UK Prime Minister. Truss’s resignation on Thursday saw a boost for Sterling as markets took heart following a prolonged period of instability.

Following a condensed leadership contest, the appointment of Rishi Sunak as the country’s next PM helped to stabilise GBP. UK bond yields also retreated which helped to improve the UK’s financial outlook.

The publication of Chancellor Jeremy Hunt’s medium-term fiscal plan will be a key focus for GBP investors going forward, assuming it is published as scheduled on 31 October. Any further policy announcements from Sunak’s new cabinet could also cause movement in GBP.

GBP/USD Exchange Rate: Downbeat Data Releases Dent Confidence in UK Outlook

The Pound US Dollar (GBP/USD) exchange rate climbed over the past week. Downbeat UK data releases capped gains for Sterling, however.

A return to double-digit inflation heightened cost-of-living concerns, while a sharper than expected slump in September’s retail sales dented the Pound on Friday.

Flash PMI figures also kept pressure on GBP exchange rates on Monday. The UK’s dominant services sector saw output contract more than expected. Additionally, data from the Confederation of British Industry (CBI) weighed on the Pound as both business optimism and factory orders declined.

Looking ahead for Sterling, distributive trades figures on Thursday could stoke concerns over the UK economy if retail sales volumes slip as forecast. The printing of October’s final PMI figures for the manufacturing sector could also pull GBP lower if they fall as forecast.

USD/GBP Exchange Rate: Fed Hints at Rate Hike Slowdown

The US Dollar (USD/GBP) exchange rate tumbled over the past seven days. The US Dollar (USD) struggled at points amid a changeable risk appetite.

Friday saw the currency slide amid reports that the Federal Reserve might begin to slow its pace of interest rate hikes.

Poor PMI figures on Monday also pushed USD lower. Output across the US private sector fell by more-than-expected. Finally, Tuesday saw consumer confidence slump to a three-month low amid expectations of higher inflation.

Thursday’s forecast third quarter expansion in the US economy could help USD to recover. On the other hand, a downturn in the PCE price index on Friday could further cool Fed rate hike bets ahead of the central bank’s interest rate decision next week.

EUR/USD Exchange Rate: Investors Anticipate Bumper ECB Rate Hike

The Euro US Dollar (EUR/USD) exchange rate rose over the past seven days. A weaker-than-expected Eurozone inflation print initially weakening the Euro as it dented European Central Bank (ECB) rate hike bets. A further escalation of the Russia-Ukraine conflict also weighed on the single currency.

Poor Eurozone PMI figures also dented confidence in EUR at the start of this week. A drop in German business confidence led to warnings of a recession in the trading bloc’s largest member, also causing a dip in EUR. A return of ECB rate hike bets on Monday helped the Euro to recover, however.

Investors will be keenly awaiting the ECB’s interest rate decision on Thursday. Another bumper rate hike could strengthen the Euro. On the other hand, the release of inflation and GDP data for the Eurozone on Monday could temper any potential gains if they disappoint.

Gareth Monk

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