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Pound’s gains capped by further signs of economic slowdown
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Euro bolstered by fresh record-low Eurozone unemployment
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US Dollar struggles as Powell signals slower Fed rate hike pace
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UK set for widespread public sector strike action
GBP/EUR Exchange Rate: Pound Soars amid Fed Pessimism
The Pound Euro (GBP/EUR) exchange rate rose over the past seven days. The Pound (GBP) struggled for significant direction initially amid a volatile market mood.
The Pound shot higher on Thursday, however, after signs the US Federal Reserve may commit to a slower pace of policy tightening. Optimism surrounding the UK-EU negotiations concerning the Northern Ireland Protocol also provided a boost to Sterling.
GBP saw mixed movement on Tuesday however, with major gains capped amid the prospect of widespread industrial action.
The prospect of strikes across multiple public and private sectors could weigh on the Pound in the coming week. The generally downbeat outlook for the UK’s economy could also keep pressure on the currency.
GBP/USD Exchange Rate: Signs of Housing Sector Downturn Weigh on GBP
The Pound US Dollar (GBP/USD) exchange rate climbed over the past week. The Pound saw losses at the week’s outset as cooler lending data pointed to an economic slowdown in the UK. A drop in business confidence also weighed on GBP.
On Wednesday, comments from Bank of England (BoE) Chief Economist Huw Pill dented confidence in GBP. Pill signalled that inflation could fall in 2023, leading to smaller rate hikes.
Thursday saw the Pound buoyed by an unexpected uptick in UK manufacturing sector performance. Whilst November’s PMI remained in contractionary territory, the improvement helped to boost GBP against a weakening US Dollar (USD). Thursday also brought a fresh a slump in house price data, however, which weighed on GBP.
Looking ahead, Monday’s GDP figures are forecast to indicate a return to growth in October. The data could boost the Pound. Wednesday’s inflation data could also boost GBP if November’s inflation ticks higher as predicted.
USD/GBP Exchange Rate: Robust Jobs Data Fails to Lift USD after Dovish Powell Speech
The US Dollar Pound (USD/GBP) exchange rate slipped over the past seven days. Wednesday brought mixed movements for the US Dollar. The JOLTs job opening figures pointed to a tight labour market which bolstered USD. A dovish speech from Fed Chair Jerome Powell saw USD shed its gains, however. Cooler inflation data also saw markets pare back interest rate hike bets.
The US Dollar spiked on Friday after further robust jobs data. The latest non-farm payrolls report beat forecasts alongside an unexpected rise in average wage growth. The gains were short lived, however, as markets continued to price in smaller rate hikes from the Fed.
Strong private sector data helped USD to recover from its Fed-inspired lows on Monday. The US services sector registered a strong expansion in November, whilst US factory orders grew by 1% in October.
Ahead of the Federal Reserve’s interest rate decision on Wednesday, a further easing in November’s inflation could dampen market bets on a larger rate hike. If the Fed hikes rates cautiously then it could see USD tumble.
EUR/USD Exchange Rate: EUR Climbs as Unemployment Hits Fresh Record Low
The Euro US Dollar (EUR/USD) exchange rate firmed over the past seven days. The single currency initially struggled as cooling Eurozone inflation pointed to a slower pace of tightening from the European Central Bank (ECB). EUR was underpinned by US Dollar weakness, however.
Thursday brought fresh gains for the single currency after Eurozone unemployment fell to a new record low of 6.5% in October. The data helped to bolster market bets on more aggressive ECB rate hikes. Friday’s slump in Eurozone PPI undermined some of this positive sentiment, however.
On the other hand, hawkish comments from ECB policymakers on Tuesday helped EUR to recover from these losses. Several board members outlined their support for at least a 50bps interest rate hike at the central bank’s December meeting.
A speech from ECB President Christine Lagarde could bolster the single currency on Thursday if she commits to hawkish interest rate hikes. A forecast slip in German inflation on Tuesday could undermine this sentiment, however.