Pound Fluctuates amid Upbeat Economic Hopes, USD Ticks Up on Renewed Rate Hike Bets

  • Pound fluctuates as economic forecasts counter domestic headwinds.
  • Euro wavers as Russia-Ukraine anxieties deepen.
  • US Dollar edges higher on renewed rate hike bets.
  • Private sector PMIs in the spotlight.

GBP/EUR Exchange Rate: Pound Fluctuates amid Upbeat Economic Hopes

The Pound Euro (GBP/EUR) exchange rate fluctuated over the last week, following the latest economic outlook from the National Institute for Economic and Social Research (NIESR).

The NIESR forecast that the UK was likely to avoid a recession in 2023, which coalesced with a bullish market mood to support Sterling.

Further to this, the UK’s fourth-quarter GDP data lent extra strength, by showing the UK had narrowly avoided a recession at the end of 2022.

This week, the Pound (GBP) has erased early gains following a soft UK inflation print. Looking ahead, Friday’s retail sales data may be a key driver of movement. January’s figures are forecast to decline, which could weigh heavily on Sterling as the UK’s retail sector continues to struggle.

GBP/USD Exchange Rate: Pound Oscillates on Changing Rate Hike Bets

The Pound US Dollar (GBP/USD) exchange rate traded in wide bounds over the past week, as investors adjusted bets for interest rate hikes.

While the UK’s GDP reading showed it had avoided a recession, a sharp slowdown in the monthly figure painted a bleaker picture. Furthermore, the BDO – an accountancy and business advisory group – found that business optimism had stagnated.

Early this week saw Sterling gain strength. The UK’s unemployment rate held at near historic lows, and more jobs were created than expected. This renewed rate hike bets amongst investors, bringing GBP higher. Unfortunately, with the UK CPI cooling to 10.1%, Sterling’s gains were lost.

Next week brings February’s flash private sector PMIs. Currently, both the UK manufacturing and services indexes are forecast to remain in contractionary territory. Because of this, GBP could weaken as private sector activity continues to decline.

USD/GBP Exchange Rate: US Dollar Edges Higher on Continued Rate Hike Bets

The US Dollar Pound (USD/GBP) exchange rate edged higher over the past week, despite some falls. Hawkish comments from Federal Reserve officials kept the ‘Greenback’ supported, despite bullish trade.

Unemployment remained historically low, which kept the appearance of a tight US labour market. As such, rate hike bets amongst USD investors battled an optimistic market mood. Further supporting the US Dollar (USD) was a larger-than-expected rise in consumer sentiment, which helped the consumption-based US economy.

This week, hotter-than-expected inflation data brought about further Fed rate hike bets, lending further support to the US Dollar.

Looking ahead, Thursday’s PPI data for January may bring further strength to the ‘Greenback’. PPI is forecast to have increased by 0.4%, which may elevate rate hike bets even further.

EUR/USD Exchange Rate: Euro Wavers on Ukraine-Russia Fears, Upbeat Economic Outlook

The Euro US Dollar (EUR/USD) exchange rate wavered over the past week, beginning with a mixed day of trade. With the pairing sharing a negative correlation, midweek strength in the ‘Greenback’ saw the single currency weaken.

German inflation declined further than expected last Thursday, keeping the Euro (EUR) low. Then, increased concerns over developments in the Russia-Ukraine war piled further pressure on EUR.

However, the European Commission’s winter forecast brought support to the common currency, as they predicted that the bloc may avoid a recession. A litany of upbeat data, such as GDP estimates confirming that the Eurozone’s economy had expanded in Q4, added further support.

Looking ahead, Germany’s ZEW economic sentiment index is due to print next week. The index is forecast to show an improvement in sentiment in February, which may bring strength to the Euro as the bloc’s economic outlook brightens.

John Mulcahey

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