Pound Tumbles as BoE Hikes Rates and Confirms Recession, US Dollar Climbs after Fed Rate Hike

  • Pound slumps as BoE confirms UK recession

  • US Dollar trims gains as Fed signals rate hike slowdown

  • Euro stages recovery after hawkish ECB comments

  • Markets await outcome of US midterm elections

GBP/EUR Exchange Rate: PM Sunak Faces Fresh Criticism over Minister Williamson

The Pound Euro (GBP/EUR) exchange rate fell over the past seven days. The Pound (GBP) struggled in the past week amid increased cost-of-living concerns. High energy costs and soaring price inflation saw retailers concerned over the sector’s outlook in the coming months.

Continued turmoil in the UK government also weighed on Sterling in the past seven days. Prime Minister Rishi Sunak faced criticism over his reappointment of Suella Braverman as Home Secretary, overcrowding at the Manston immigration centre, and cabinet minister Gavin Williamson.

Looking ahead, any further disruption in the UK government could prompt movement in the Pound. The potential for further industrial action may also dent confidence in Sterling.

GBP/USD Exchange Rate: BoE Hikes Rates by 0.75% and Confirms Recession

The Pound US Dollar (GBP/USD) exchange rate climbed over the past week. The Pound (GBP) initially saw sharp losses after the Bank of England’s (BoE) interest rate decision. The central bank rose interest rates by 0.75% which prompted fears that the decision could harm the UK’s economic growth.

The BoE’s confirmation that the UK is now in a recession also pushed the Pound lower over the past seven days. Sterling managed to stage a late recovery amid some dip-buying and an improving market mood.

GDP figures on Friday could pull the Pound lower if they confirm a third-quarter contraction in the UK’s economy. A further rise in October’s inflation could also prompt losses in Sterling if it adds to concerns regarding the country’s cost-of-living crisis.

USD/GBP Exchange Rate: Fed Signals Policy Tightening Slowdown

The US Dollar Pound (USD/GBP) exchange rate fell over the past seven days. The US Dollar (USD) saw a spike early on after the Federal Reserve’s interest rate decision. Signals from the Fed that they would begin to slowdown their pace of policy tightening capped gains for USD, however.

An above-forecast contraction in services sector performance pulled the US Dollar down as the week went on. Additionally, markets pared back bets on the US Dollar ahead of the results of the US midterm elections.

A forecast further slip in October’s inflation on Thursday may dent confidence in USD and see markets trim Fed rate hike bets. A drop in PPI on Tuesday could have a similar effect.

EUR/USD Exchange Rate: ECB Signals Further Rate Hikes to Come

The Euro US Dollar (EUR/USD) exchange rate rose in the past week. Gains for the Euro (EUR) were initially limited amid a swathe of downbeat data releases. Performance in the Eurozone’s manufacturing sector fell more than forecast adding to fears of a recession.

A fresh record low in Eurozone unemployment helped underpin the single currency, however. Hawkish comments from European Central Bank (ECB) President Christine Lagarde also lent support to EUR. However, the Euro saw further losses amid ongoing escalation in the Russia-Ukraine conflict, however.

A third-quarter slowdown in the Eurozone’s economy could push EUR lower if Tuesday’s figures print as forecast.

Gareth Monk

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