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Pound slumps as Q3 GDP figures point to deep recession
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US Dollar bolstered by signs of tight labour market
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Euro firms amid hawkish ECB rhetoric
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Strike action across UK continues to hamper private sectors
GBP/EUR Exchange Rate: Widespread Strike Actions Weighs on Sterling
The Pound Euro (GBP/EUR) exchange rate slumped over the past seven days amid continued widespread industrial action in the UK.
Retail sector heads warned of the damaging impact of Royal Mail strikes. While rail strikes saw hospitality businesses face widespread disruption during the normally busy festive period.
Business surveys outlining the damaging impact of Brexit also weighed on Sterling. A report by the British Chambers of Commerce (BCC) found that roughly 75% of UK businesses had seen no boost from the country’s post-Brexit agreement. Additionally, signs of a cooldown in the UK housing sector also kept pressure on Sterling.
Turning to the coming week, ongoing industrial action could leave the Pound vulnerable to additional losses. Recent reports of meaningful progress towards a pay deal for rail workers over the Christmas period could lend some support to GBP, however.
GBP/USD Exchange Rate: Pound Tumbles as Q3 GDP Revised Lower
The Pound US Dollar (GBP/USD) exchange rate slipped over the past week. The Pound slipped on Wednesday as the Confederation of British Industry’s latest retail sales data fell by more-than-expected. A record-high level of government borrowing in November also pointed to weakness in the UK’s economy.
Sterling then extended these losses on Thursday after the UK published its finalised GDP figures for the third quarter. The data reported a larger-than-expected contraction of 0.3% in the three months to September.
The underwhelming release revived concerns over the size of the recession currently facing the UK. Heading into the Christmas period, a lack of data saw Sterling edge lower.
Looking to the week ahead, the final reading of December’s manufacturing sector PMI could pull the Pound lower. The index is expected to confirm a deepening contraction in the sector on Tuesday’s
USD/GBP Exchange Rate: Evidence of Tight Labour Market Bolsters USD
The US Dollar Pound (USD/GBP) exchange rate firmed over the past seven days. A risk-off market mood initially underpinned USD. A sharp rise in December’s consumer confidence levels also boosted the currency.
The latest initial jobless claims also pushed USD higher amid evidence of a continually tight labour market, strengthening bets on further interest rate hikes from the Federal Reserve. An upward revision in third quarter GDP figures then provided additional support to the ‘greenback’.
Friday saw USD shed some of its gains however, as multiple data releases pointed to a slowdown in the US economy. Durable goods orders plunged by 2.1% in November. A slip in the core PCE price index also weighed on USD.
Looking ahead, a slip in the latest US manufacturing output figures could pull USD lower if they print as forecast. If the latest FOMC minutes from the Fed hint at further rate hikes then the currency could climb.
EUR/USD Exchange Rate: Euro’s Gains Capped by Russia-Ukraine Concerns
The Euro US Dollar (EUR/USD) exchange rate rose over the past seven days. The Euro (EUR) initially benefitted from a risk-off market mood on Wednesday, although a below-forecast rise in German consumer confidence capped gains.
The single currency found further support from hawkish European Central Bank (ECB) policymakers over the past week. Multiple ECB board members signalled the need for further 50bps interest rate hikes. Further escalations in the Russia-Ukraine conflict kept EUR’s gains limited, however.
The final reading of Eurozone manufacturing PMIs on Monday could pull EUR lower if they confirm a December contraction. A forecast slip in Germany’s inflation on Tuesday could also dent the Euro amid reduced ECB rate hike bets.