GBP Gains despite Evidence of Softer Labour Market, USD Slumps as SVB Collapse Prompts Fed Bet Pullback

  • Pound climbs despite cooler wage growth.

  • US Dollar stumbles as markets pare back Fed bets.

  • Euro muted ahead of ECB interest rate decision.

  • Collapse of Silicon Valley Bank prompts expectations of global rate hike slowdown.

GBP/EUR Exchange Rate: Pound Skittish as Markets Await Spring Budget

The Pound Euro (GBP/EUR) exchange rate climbed over the past seven days. The Pound (GBP) stumbled initially as a lack of data left Sterling vulnerable.

Dovish comments from Bank of England (BoE) policymaker Swati Dhingra kept bets on GBP subdued on Thursday. GBP managed to rally on Friday however, as sentiment around the BoE’s forward path shifted to a more hawkish tone.

The collapse of Silicon Valley Bank (SVB) initially dampened enthusiasm for the Pound on Monday. HSBC’s buyout of SVB’s UK operations prevented any substantial losses for GBP, however. Markets were also cautious ahead of the UK’s Spring Budget.

Looking to the coming week, Sterling could see movement after the unveiling of the Budget. Any growth-boosting plans could lift the Pound. However, further industrial action could keep pressure on GBP.

GBP/USD Exchange Rate: Sterling’s Gains Capped by Cooler Wage Growth

The Pound US Dollar (GBP/USD) exchange rate gained over the past week. The Pound was subdued to begin with amid a lack of data.

Sterling found support on Friday from better-than-expected GDP figures, however. The UK’s economy expanded by 0.3% in January versus forecasts of 0.1% growth.

GBP lost some of this momentum on Tuesday. Cooler wage growth figures for January led to a pullback in BoE rate hike bets, which prompted losses in Sterling.

February’s UK inflation data could pull the Pound lower if it slips as forecast on Wednesday. The cooler figures could prompt a further pullback in BoE bets.

USD/GBP Exchange Rate: Pullback in Fed Bets after SVB Collapse Weighs on USD

The US Dollar Pound (USD/GBP) exchange rate fell over the past seven days. The US Dollar (USD) was victim to some profit-taking on Wednesday, although sharp losses were limited by a hawkish testimony from Federal Reserve Chair Jerome Powell.

USD came under further pressure on Thursday after jobless claims leaped to a ten-week high. The data pointed to a softening US labour market, which dented Fed rate hike bets. A rise in February’s unemployment rate on Friday added to this downturn.

The collapse of SVB saw a reverse in Fed rate hike bets on Monday. The central bank’s rapid pace of interest rate hikes was highlighted as a key factor in SVB’s downfall. Cooler inflation figures on Tuesday deepened USD’s losses.

Looking to the coming week, markets will be keenly awaiting the Fed’s interest rate meeting on Wednesday. Hawkish signals from Fed policymakers could bolster USD.

EUR/USD Exchange Rate: Losses for Euro Limited by Bets on Hawkish ECB Hike

The Euro US Dollar (EUR/USD) exchange rate rose over the past week. The Euro (EUR) saw some choppy movement at first. A downward revision to fourth-quarter Eurozone GDP growth figures weighed on EUR. A weaker US Dollar helped the single currency to recover some lost ground.

The Euro saw subdued movements throughout much of week. The final reading of Germany’s February inflation on Friday provided little impetus to EUR amid a lack of other significant data.

Persistent bets on a 50bps rate hike from the European Central Bank (ECB) helped to limit any losses for EUR, however. Markets continued to anticipate hawkish forward guidance from the ECB despite evidence of a split in policymakers.

The ECB’s interest rate decision on Thursday could push EUR higher if the central bank hints at further hikes. On the other hand, a forecast drop in Germany’s economic sentiment index on Tuesday could pull the Euro lower.

Gareth Monk

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