Pound Fluctuates as Inflation Climbs to Fresh Highs, US Dollar Struggles as Markets Pare Back Rate Hike Bets

  • Pound fluctuates as inflation hits 41-year high

  • US Dollar edges lower as markets pare back Fed rate hike bets

  • Euro slips as Russia-Ukraine conflict intensifies

  • UK forecast to experience year-long recession

GBP/EUR Exchange Rate: UK Economy to Trail Other G20 Members in 2023

The Pound Euro (GBP/EUR) exchange rate rose over the past seven days. Hawkish comments from Bank of England (BoE) Governor Andrew Bailey pushed Sterling higher.

GBP saw its gains capped on Thursday however, as the UK government revealed its Autumn Statement and confirmed that the UK has entered a recession.

A downbeat outlook for the UK economy kept Sterling trading within a limited range for the rest of the week. Forecasts from the Organisation for Economic Co-operation and Development (OECD) on Tuesday stated that the UK would be the second-worst performing economy within the G20 in 2023.

Looking ahead, further warning signs of weakness in the UK economy could push the Pound lower in the coming week.

GBP/USD Exchange Rate: UK Inflation Climbs to 41-Year High

The Pound US Dollar (GBP/USD) exchange rate edged higher over the past seven days. The Pound saw some volatile movements however amid contrasting data releases.

Inflation hit a 41-year high on Wednesday which added to fears over the UK’s cost-of-living crisis. The data did prompt market bets on further rate hikes from the BoE however, which lent support to Sterling.

The pound strengthened on Friday after a surprisingly strong rebound in UK retail sales in October, before stabilising this week following the UK’s latest borrowing and PMI releases.

A downturn in industrial trends orders on Thursday could weigh on the Pound if figures print as forecast. A slip in distribute trades figures could also pull Sterling lower.

USD/GBP Exchange Rate: Markets Pare Back Fed Rate Hike Bets

The US Dollar Pound (USD/GBP) exchange rate ticked lower over the past week. The US Dollar (USD) initially struggled as markets pared back bets on further interest rate hikes from the Federal Reserve.

A rise in US retail sales helped to reverse these losses however, with a subsequent fall in jobless claims on Thursday extending the US Dollar’s recovery.

The safe-haven ‘Greenback’ found support later in the week amid a cautious market mood. A rise in China’s Covid-19 case levels added to global recession concerns. Additionally, fears of a nuclear incident in Ukraine prompted a pullback in risk appetite.

The publication of the minutes from the Fed’s November policy meeting will be a key focus for USD investors going forward. Expect to see USD exchange rates rally if they it signal further interest rate hikes from the Fed.

EUR/USD Exchange Rate: Russia-Ukraine Conflict Escalates as Shelling Around Nuclear Plant Intensifies

The Euro US Dollar (EUR/USD) exchange rate slipped over the past seven days. The single currency saw headwinds amid further developments in the Russia-Ukraine conflict.

A missile strike on a Polish village prompted concerns of an escalation in the conflict. Artillery strikes around Ukraine’s Zaporizhzhia nuclear plant also weighed on EUR.

Market bets on further interest rate hikes from the European Central Bank (ECB) helped to limit losses for the Euro, however. Hawkish comments from ECB officials increased speculation on an aggressive rate hike from the central bank despite risk of a Eurozone recession.

Eurozone inflation figures on Wednesday are likely to act as a key catalyst for the Euro over the next week. If inflation ticks higher in October, then it could bolster bets on further ECB rate hikes and lift the single currency.

Gareth Monk

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