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Pound slips after dovish BoE forward guidance
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US Dollar buoyed by hawkish Federal Reserve and risk-off flows
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Euro soars as ECB hikes interest rates by 50bps
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UK sees widespread industrial action including nurses’ strike
GBP/EUR Exchange Rate: Pound Tumbles after Dovish BoE Meeting
The Pound Euro (GBP/EUR) exchange rate fell over the past seven days. The Pound (GBP) initially traded in a narrow range ahead of the Bank of England’s (BoE) interest rate decision. Markets remained optimistic ahead of the meeting.
Sterling plummeted following the BoE’s decision on Thursday. Whilst the central bank hiked rates by 50bps as forecast, dovish forward guidance pushed GBP lower. Two of the BoE’s policymakers voted in favour of leaving rates unchanged. Additionally, BoE Governor Andrew Bailey signalled that the UK would see a fourth-quarter recession.
Widespread industrial action in the UK also kept Sterling on the defensive over the past seven days. Talks aimed at averting multiple strikes made no meaningful progress.
Further strikes could continue to dent confidence in the Pound. Additionally, the market reaction to the BoE’s interest rate decision could also weigh on the currency.
GBP/USD Exchange Rate: Unexpected Retail Sales Slump Weighs on Sterling
The Pound US Dollar (GBP/USD) exchange rate tumbled over the past seven days. Sterling began the past week ticking higher despite below-forecast inflation in November. The figures did little to deter market bets on a 50bps interest rate hike from the BoE, although the central bank’s dovish language sent GBP tumbling.
Friday’s unexpected slump in retail sales pulled the Pound lower on Friday. Black Friday and early Christmas shopping failed to provide the expected boost to the retail sector. Sterling’s losses were tempered by PMI data, however, as the UK’s services sector avoided a contraction in December.
Looking ahead, the final reading of third-quarter GDP figures on Thursday could pull GBP lower if the economy contracts as forecast.
USD/GBP Exchange Rate: Hawkish Fed Rhetoric Bolsters US Dollar
The US Dollar Pound (USD/GBP) exchange rate made steady gains over the past week. The US Dollar (USD) surged after the Federal Reserve’s interest rate decision. The Fed hiked interest rates by 50bps alongside hawkish forward guidance. Fed Chair Jerome Powell signalled that further rate hikes were to come.
Worse-than-expected retail sales on Thursday dented confidence in USD, although a strong risk-off mood kept the safe-haven currency buoyant. Poor PMI figures later that day did see the currency fall, however. December’s figures indicated a larger-than-forecast contraction across the private sector.
Thursday’s initial jobless claims figures could bolster the US Dollar if they print as expected. The data could point to a persistently tight labour market. The latest reading of the core PCE price index on Friday could weigh on USD if it slips as forecast. A downturn in the Fed’s preferred measure of inflation could see markets pare back interest rate hike bets.
EUR/USD Exchange Rate: ECB Surprises with Hawkish Rate Hike, Boosts Euro
The Euro US Dollar (EUR/USD) exchange rate slipped over the past week. The Euro (EUR) soared after the European Central Bank’s (ECB) interest rate decision on Thursday. The ECB hiked interest rates by 50bps which, alongside hawkish forward guidance, bolstered the single currency.
Strong PMI data for the Eurozone also saw gains for EUR initially. Private sector activity contracted by less than expected, pointing to resilience in the trading bloc’s economy. Additionally, Eurozone trade data bucked forecasts to indicate a shrinking trade deficit rather than a widening gap.
The positive data was not enough to entirely offset the impact of the Russia-Ukraine conflict, however. The conflict saw further escalations amid large-scale missile strikes in Kyiv. EUR slipped overall against a stronger US Dollar.
With no significant data in the coming week, the Euro is likely to be affected by risk appetite and any developments in the Russia-Ukraine conflict.