US Dollar Slumps as Inflation Cools, Pound Faces Headwinds as UK Inflation Storms Higher

  • Pound dented by spike in inflation
  • Euro bolstered by hawkish ECB rhetoric.
  • US Dollar plummets after cooler-than-expected inflation data.
  • UK’s long-term outlook continues to worsen.

GBP/EUR Exchange Rate: Gains for Sterling Tempered by Poor UK Outlook

The Pound Euro (GBP/EUR) exchange rate ticked higher over the past seven days. The Pound initially struggled against a worsening outlook for the UK’s economy. The country’s retail sector reported worsening as furniture retailer fell into administration, with Joules following suit on Tuesday.

GDP figures on Friday added to the Pound’s woes as data confirmed a third quarter contraction in the UK economy, adding to speculation of a deep recession.

The latest UK consumer price then applied fresh pressure to Sterling as it revived UK economic concerns. A sharper-than-expected rise in inflation stoked concerns the UK may be facing a deeper recession than previously feared.

Investors will be keenly awaiting the UK government’s Autumn statement on Thursday. Reports have indicated that Chancellor Jeremy Hunt will announce a range of spending cuts and tax rises. If markets see these measures as harming growth, then it could dent the Pound.

GBP/USD Exchange Rate: Sterling Hits 3-Month High amid Signs of Strong Wage Growth

The Pound US Dollar (GBP/USD) exchange rate climbed over the past seven days, reaching its highest point since August.

Renewed confidence in Prime Minister Rishi Sunak helped to underpin Sterling as the week went on. Sunak’s willingness to engage with Northern Ireland over its trade arrangements with the EU came as a relief to GBP investors

Mixed employment data on Tuesday then saw GBP exchange rates extend its gains. While unemployment unexpectedly rose, wage growth figures for September beat forecasts. This led to markets increasing bets on further interest rate hikes from the Bank of England (BoE), which in turn bolstered the Pound.

Looking ahead, a forecast mild recovery in the UK retail sector on Friday could lend support to the Pound. On the other hand, flash PMI figures for the country’s private sectors on Wednesday could limit any gains if they report another contraction in the UK’s private sector.

USD/GBP Exchange Rate: USD Plummets as Inflation Data Suggests Peak

The US Dollar Pound (USD/GBP) exchange rate slumped over the past week. USD came under pressure ahead of the results of the US mid-term elections. Sweeping gains for the Republican party were initially forecast but failed to materialise. A risk-off mood underpinned the safe-haven ‘Greenback’, however.

Evidence of cooling inflation sent the US Dollar tumbling on Thursday as inflation fell by more than forecast to 7.7%. The release of the data triggered a paring of market bets on further aggressive interest rate hikes from the Federal Reserve.

A weaker-than-expected PPI release then reinforced this selloff, driving USD exchange rates to new multi-month lows. Before a missile struck Poland, stoking fears of an escalation of the war in Ukraine and funneling investors toward the safe-haven currency.

A forecast rise in US retail sales could help USD to extend this recovery if figures print as strongly as forecast.  While market risk appetite will continue to play a major role in determining the direction of the US Dollar.

EUR/USD Exchange Rate: Hawkish ECB Rhetoric Continues to Support Euro

The Euro US Dollar (EUR/USD) exchange rate climbed over the past seven days. Hawkish comments from European Central Bank (ECB) officials continued to provide support to the single currency, as did a weaker US Dollar. Warnings from the ECB of a sharp downturn in the Eurozone limit gains, however.

Positive data releases supported further gains for EUR as the week went on. Monday saw an above-forecast expansion in the Eurozone’s industrial sector. On Tuesday, a better-than-expected increase in German economic sentiment also bolstered the Euro.

The final reading of Eurozone inflation on Thursday could see EUR climb if figures print as forecast. Speeches from ECB policymakers over the next seven days could also push the Euro higher if they maintain a hawkish tone.

Gareth Monk

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