Promise of Further BoE Rate Hikes Boosts Pound, Euro Slips as Cooling Inflation Points to Smaller ECB Rate Hikes

GBP/EUR Exchange Rate: Pound Firms on Hopes for Mild Recession

The Pound Euro (GBP/EUR) exchange rate climbed over the past seven days. Sterling strengthened after better-than-forecast PMIs. The data led to hopes that the UK may see a milder recession that first forecast, pushing GBP higher.

The UK Supreme Court’s ruling that a second Scottish independence referendum would not be permitted also saw the Pound rally.

On Tuesday, comments from PM Rishi Sunak hinting at a more combative stance toward China prompted some market jitters. While a drop in mortgage approvals stoked concerns over UK economic growth and weighed on GBP.

The promise of widespread industrial action across the UK could push the Pound lower in the coming week.

GBP/USD Exchange Rate: Sterling Boosted by Hawkish BoE Speeches

The Pound US Dollar (GBP/USD) exchange rate firmed over the past seven days. As several Bank of England (BoE) policymakers hinted at the need for further interest rate hikes.

This uptick in GBP exchange rates was also supported by an improving market mood.

The Pound slipped on Monday however after the release of the latest retail sales figures. Distributive trades data fell by more-than-forecast as the UK’s retail sector continued to show signs of poor health.

Looking ahead for the Pound, the final reading of November’s private sector PMIs on Thursday and Monday could pull the currency lower if the are revised lower.

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

The US Dollar Pound (USD/GBP) exchange rate slipped over the past week. The US Dollar (USD) began the week on the defensive, as poor PMI figures on Wednesday saw markets pare back interest rate hike bets. The latest FOMC minutes added to expectations of a dovish pivot from the Federal Reserve.

A pullback in risk appetite benefitted the safe-haven ‘Greenback’ as the week went on. Anti-lockdown protests in China saw investors flock to safer assets. Consumer confidence figures on Tuesday capped gains for USD however, as the indicator fell to a four-month low.

Looking ahead for USD, a speech from Fed Chair Jerome Powell may potentially providing support for the US Dollar if he maintains his recent hawkish tone. Friday’s forecast non farm payrolls could also boost USD if the US economy continued to add jobs at a robust pace.

EUR/USD Exchange Rate: Signs of Cooling Eurozone Inflation Weigh on EUR

The Euro US Dollar (EUR/USD) exchange rate edged higher over the past week. A risk-on market mood initially dented demand for the single currency. The release of the latest minutes from the European Central Bank (ECB) also weighed on EUR amid signals that the central bank could pursue smaller rate hikes.

An upward revision in Germany’s GDP growth rate on Friday lent support to the Euro. Comments from ECB President Christine Lagarde kept gains limited however, as she said that the ECB would act to temper inflation despite the risk of a Eurozone recession.

Signs of cooling inflation across the Eurozone also kept pressure on EUR exchange rates as Eurozone CPI came in below forecasts leading markets to pare back ECB rate hike bets.

Looking ahead, the latest Eurozone unemployment data could help the single currency to climb on Thursday. October’s figures are expected to remain at a record low of 6.6% which could increase market bets on action from the ECB.

Gareth Monk

Contact Gareth Monk


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