US Dollar Plunges as Wage Growth Cools, Pound Supported by Hawkish BoE Comments

  • Pound finds support from hawkish BoE comments amid signs of UK downturn

  • US Dollar tumbles as cooling wage growth sees pullback in Fed bets

  • Euro climbs as unemployment remains at record-lows

  • Industrial action across UK set to continue

GBP/EUR Exchange Rate: Pound Wavers as Strikes Continue

The Pound Euro (GBP/EUR) exchange rate fluctuated over the past seven days. The Pound (GBP) struggled to attract investor interest as further industrial action took place throughout the UK. Talks between UK government ministers and union heads failed to produce any meaningful progress in the past week.

After rallying from its worst levels at the end of last week, the GBP/EUR exchange rate came under pressure following news that the government would be scaling back its energy bill support for businesses.

The UK Treasury announced on Monday that it would be cutting support from April in a bid to reduce government spending. Following the announcement, business heads expressed their concerns that the change could lead to some struggling firms going out of business.

Going forward, further strikes from health and rail sector union members could dent confidence in the Pound. On the other hand, any signs of a possible compromise could bolster GBP.

GBP/USD Exchange Rate: GBP Gains Against USD after Hawkish BoE Comments

After initially stumbling following a downwards revision to the UK’s latest services PMI, the Pound US Dollar (GBP/USD) exchange rate was able to trend broadly higher over the past week. Sterling  made its strongest gains against the US Dollar (USD) at the end of last week amid an uptick in risk appetite.

Market expectations of the Bank of England’s (BoE) policy tightening path had a mixed effect on the Pound over the past seven days.

On the one hand, a slowdown in job vacancies in December pointed to a cooler labour market. On the other, hawkish comments from BoE Chief Economist Huw Pill kept interest rate hike bets buoyed.

Looking ahead, Friday’s GDP data could weigh on the Pound if it confirms a contraction in the economy in November. Wednesday’s inflation figures could provide a welcome boost to Sterling however, with the predicted rise in inflation potentially adding to expectations of further rate hikes from the BoE.

USD/GBP Exchange Rate: US Dollar Tumbles as Jobs Data Points to Fed Slowdown

The US Dollar (USD/GBP) exchange rate slipped over the past seven days. The US Dollar was pulled lower by a return of global risk appetite on Wednesday, with the latest FOMC meeting minutes having little impact on USD. Evidence of a worsening contraction in the US manufacturing sector also pulled the currency lower.

Robust jobs data on Thursday then lent support to the US Dollar The evidence of a tight labour market prompted bets on further interest rate hikes from the Federal Reserve.

However, Friday’s more influential non farm payroll release saw the ‘Greenback’ shed many of these gains. Evidence of cooling wage growth led to a pullback in Fed rate hike bets and a weaker US Dollar.

The USD selloff was exacerbated by a shock contraction in the US service sector in December. While a risk-on market mood also weighed on USD as the week went on.

Looking to the coming week, a drop in December’s inflation could prompt losses in the US Dollar if they print as forecast on Thursday. A forecast drop in December’s PPI on Wednesday could have a similar effect.

EUR/USD Exchange Rate: Euro Bolstered by Record-Low Unemployment

The Euro US Dollar (EUR/USD) exchange rate rallied over the past seven days. The Euro (EUR) initially slipped on Wednesday amid an upbeat market mood. An upward revision in the final reading of the Eurozone services PMI cushioned EUR’s downside, however.

Thursday’s slip in PPI extended the single currency’s losses, as markets took it as evidence of a slower path of rate hikes from the European Central Bank (ECB). Friday’s above-forecast slowdown in Eurozone inflation also prompted a pullback in bets on further ECB action.

Unemployment remained at record-lows on Monday however, which strengthened the Euro. Hawkish comments from ECB officials on Tuesday also boosted EUR.

A predicted slowdown in Germany’s 2022 GDP growth could see the Euro fall if Friday’s figures print as forecast. The data is likely to add to fears of a protracted recession for the Eurozone.

Gareth Monk

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