Pound Underpinned by BoE Rate Hike Bets, US Dollar Bolstered by GDP Boost

  • Pound supported by BoE rate hike bets.

  • US Dollar bolstered by upbeat GDP release.

  • Euro dented by Ukraine concerns.

  • Central bank rate decisions in the spotlight.

GBP/EUR Exchange Rate: Pound Buoyed by BoE Rate Hike Bets

The Pound Euro (GBP/EUR) trended higher in the second half of last week. The Pound (GBP) found support from persistent bets on a 50bps interest rate hike from the Bank of England (BoE).

A speech from UK Chancellor Jeremy Hunt on Friday failed to add provide any positive impetus for the Pound. Hunt signaled that tax cuts would not be forthcoming which disappointed investors.

A warning from the International Monetary Fund (IMF) that the UK will be the only major economy to shrink in 2023 dented confidence in the Pound at the start of this week. Ongoing industrial action in the UK then added to the pressure on Sterling over the past couple of days.

The announcement of further strikes from health and rail sector staff could continue to drag on the Pound over the coming week.

GBP/USD Exchange Rate: Retail Sales Slump Weighs on Sterling

The Pound US Dollar (GBP/USD) exchange rate trended fluctuated over the past seven days. The Pound stumbled on Wednesday after a slip in December’s PPI figures.

On Thursday, the latest retail sales figures from the Confederation of British Industry (CBI) added to GBP’s woes. December’s sales volumes fell well above forecasts, adding to the poor outlook for the sector.

Sterling found support from BoE interest rate hike bets as the week went on, however. Speculation that the BoE is set to slow their pace of policy tightening at upcoming meetings kept GBP within a narrow range, however.

Looking to the week ahead, the BoE’s interest rate decision is likely to be a key driver of Pound movement on Wednesday. Signs of a softer future rate hike policy could dent Sterling.

USD/GBP Exchange Rate: US Dollar Bolstered by Strong GDP Figures

The US Dollar Pound (USD/GBP) exchange rate saw some volatile movement over the past seven days, ultimately ending the week close to its starting position.

Strong GDP growth figures saw USD exchange rates rally on Thursday. The data indicated an above-forecast expansion in the US economy during the fourth quarter of 2022. The figures, as well as better-than-expected durable goods data, helped to stem fears of a recession.

Mixed data on Friday saw USD shed some of its gains, however. An above-forecast drop in personal spending in prompted a pullback in bets on further Fed rate hikes. On the other hand, an uptick in the core PCE price index lent support to the US Dollar.

Looking ahead, the Fed’s interest rate decision on Wednesday evening could pull USD lower if the central bank commits to a slower pace of rate hikes. Friday’s employment data have a mixed effect on the US Dollar, however.

EUR/USD Exchange Rate: Euro Undermined by Ukraine Escalation Fears

The Euro US Dollar (EUR/USD) exchange rate wavered over the past week. The Euro (EUR) came under pressure in the second half of last week from fears of further escalations in the Russia-Ukraine conflict.

A rise in Eurozone economic sentiment on Monday provided a modest boost to the EUR. A surprise slip in fourth quarter German GDP figures trimmed these gains, however. The data added to fears that the trading bloc’s largest member could be facing a winter recession.

Tuesday’s surprise expansion in the Eurozone’s economy then revived support for the Euro. The data bolstered sentiment surrounding EUR and lifted bets on further rate hikes from the European Central Bank (ECB).

Looking to the coming week, the ECB’s interest rate decision could bolster the Euro on Thursday. Hawkish signals from the central bank could provide a further boost to the single currency.

Gareth Monk

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