Pound Underpinned by BoE Rate Hike Bets, Euro Slides as ECB Rate Hike Adds to Recession Fears

  • Pound supported by bets on 0.75% BoE rate hike.

  • Euro tumbles after ECB rate hike amid dovish rhetoric.

  • US Dollar climbs steadily as markets price in bumper Fed rate hike.

  • UK PM Sunak faces criticism over reappointment of Suella Braverman.

GBP/EUR Exchange Rate: Sunak Faces Criticism over Braverman Reappointment

The Pound Euro (GBP/EUR) exchange rate climbed over the past seven days. The Pound (GBP) found support from confidence in UK PM Rishi Sunak’s fiscal competency.

Sterling saw its rally capped as the week went on, however. Sunak faced criticism over his reappointment of Suella Braverman as Home Secretary. Additionally, GBP saw continued headwinds from the delaying of the UK’s autumn budget statement.

Looking ahead, fears of further political turmoil in the UK could weigh on the Pound. The power-sharing crisis in Stormont could also generate fresh Brexit-related headwinds for the currency.

GBP/USD Exchange Rate: Sterling Finds Support from BoE Rate Hike Bets

The Pound US Dollar (GBP/USD) exchange rate fell over past week. The Pound (GBP) struggled to consolidate any gains amid some disappointing data releases. Lending data on Monday pointed to a further slowdown in the UK economy. Additionally, PMI figures on Tuesday indicated a further contraction in the UK’s manufacturing sector.

Expectations for the Bank of England’s (BoE) next interest rate decision prompted mixed movements in Sterling. Market expectations of a 0.75% rate hike underpinned the Pound, although speculation that the BoE could pursue a more cautious approach capped any gains.

The BoE’s interest rate decision on Thursday could boost GBP if the central bank pushes ahead with a 0.75% rate hike. On the other hand, downbeat PMI figures could weigh on the Pound in the coming week.

USD/GBP Exchange Rate: Markets Price in Bumper Fed Rate Hike

The US Dollar Pound (USD/GBP) exchange rate made gains over the past week amid some volatile shifts. Reports that the Federal Reserve would begin to slow down its pace of interest rate hikes initially weighed on the US Dollar. Cooler inflation figures on Wednesday added to this speculation, although positive GDP figures helped to offset some of the losses.

The ‘Greenback’ managed to recover from its losses as the week went on, however. Above-forecast printings of job openings figures and manufacturing sector output bolstered Fed rate hike bets. This in turn pushed USD higher.

The focus for USD in the coming week will be the Fed’s interest rate decision on Wednesday. If the central bank raises rates as forecast, it could bolster the currency. Employment data on Friday could also lend support to the currency if the labour market remains tight.

EUR/USD Exchange Rate: ECB Rate Hike Adds to Eurozone Recession Fears

The Euro US Dollar (EUR/USD) exchange rate slumped over the past seven days. The single currency tumbled after the European Central Bank’s (ECB) interest rate decision on Thursday. EUR suffered amid dovish signals from the ECB, as well as fears that the aggressive hike could push the Eurozone closer to a recession.

Strong data releases later in the week failed to lift the Euro. Monday saw Eurozone inflation hit a fresh record high of 10.7%. The data prompted concerns from investors of higher prices and poor economic activity which pushed the single currency lower.

Looking ahead, Eurozone unemployment figures on Thursday could have a mixed effect on EUR. If the rate prints close to record-lows it could increase ECB rate hike bets, which may bolster the single currency. On the other hand, the data could add to concerns over the trading bloc’s economic recovery.

Gareth Monk

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