Pound (GBP) Firms Overall, Buoyed by Fed Caution
GBP/EUR: Up from €1.15 to €1.16
GBP/USD: Up from $1.19 to $1.22
The Pound (GBP) experienced volatility last week as risk sentiment alternated between bullish and bearish, and UK data printed below expectations.
At the start of the week, a dismal reading from the Confederation of British Industry (CBI) depressed Sterling appeal. On Tuesday, GBP was able to recover some of its losses as a risk-on mood helped to buoy the currency.
Midweek, dovish rhetoric from the Bank of England (BoE)’s Huw Pill dented the Pound further against its peers, following on from Catherine Mann’s downbeat speech the day before. Pill echoed Mann’s commented that interest rate expectations for the BoE were too high.
On Thursday, GBP recovered somewhat amid a plummet in US Dollar exchange rates. The Federal Reserve indicated it would pursue a path of smaller interest rate hikes ahead, reducing policy divergence between the Fed and the Bank of England.
At the end of the week, Sterling dropped once more, although significant losses were capped by optimism over the Northern Ireland protocol. The President of the European Commission, Ursula Von der Leyen, commented that solutions must ensure the single market continues to function.
Euro (EUR) Trades Mixed on Weak Domestic Data
EUR/GBP: Down from £0.86 to £0.85
EUR/USD: Up from $1.03 to $1.05
The Euro (EUR) climbed at the beginning of last week, as a risk-off mood supported toward the comparatively safe-haven currency. The single currency may also have been buoyed by a weaker US Dollar (USD).
On Tuesday, EUR gains were capped by Germany’s preliminary inflation rate, which printed lower than expected. Midweek, the single currency fell further as inflation across the bloc also missed forecasts, suggesting the ECB may opt for smaller interest rate hikes ahead.
On Thursday, the Euro retained an upside against several peers, though fell against the Pound. Finalised manufacturing data came in below forecast and German retail sales slumped by 2.8% – however, weakness in the US Dollar prevented more significant losses.
EUR tumbled further on Friday as Eurozone data disappointed and the US Dollar found renewed support. ECB President Christine Lagarde gave a dovish speech which was closely followed by a drop in Germany’s October trade surplus.
US Dollar (USD) Tumbles on Dovish Fed
USD/GBP: Down from £0.83 to £0.81
USD/EUR: Down from to €0.96 to €0.94
The US Dollar (USD) was bolstered at the beginning of the week, as the safe-haven currency drew support amid anti-lockdown protests in China.
Subsequently, Federal Reserve officials inspired movement in USD exchange rates. With inflation showing signs of having peaked, the central bank’s John Williams and James Bullard were initially hawkish in their rhetoric.
Nevertheless, a dovish speech from Fed Chair Jerome Powell triggered bearish sentiment on Thursday, as the chairman stated that the Fed could begin to slow its pace of tightening monetary policy. Bets for larger interest rate hikes were curtailed, denting the currency.
The ‘Greenback’ was able to garner some fresh support on Friday, as the latest non-farm payroll figures showed that the labour market hadn’t slowed as much as expected. This renewed tentative hope for further interest rate hikes.