Pound recovers as market mood improves and BoE bets return.
US Dollar struggles amid expectations of softer Fed pace.
Euro regains ground after hawkish ECB signals.
Market mood improves following Credit Suisse buyout.
GBP/EUR Exchange Rate: Pound Changeable amid European Banking Jitters
The Pound Euro (GBP/EUR) exchange rate saw some volatile movements over the past seven days. The pairing managed to gain on its starting position by week’s end as confidence returned to the markets.
The Pound (GBP) saw mixed movements initially after the unveiling of the UK’s Spring Budget. Forecasts from the Office for Budget Responsibility (OBR) indicated that the UK is likely to miss a recession in 2023. This lent support to GBP/EUR.
On the other hand, fears of a collapse in the European banking sector weighed on the pairing. These fears persisted over much of the past week until the announcement of Credit Suisse’s buyout on Sunday. GBP edged higher following the news.
Aside from the Bank of England (BoE) interest rate decision, domestic headwinds could be a key driver of the Pound in the coming week. A potential divide amongst Conservative MPs over the ‘Windsor Framework’ could dent confidence in Sterling.
GBP/USD Exchange Rate: Renewed BoE Bets Push Sterling Higher
The Pound US Dollar (GBP/USD) exchange rate rose over the past week. The pairing found support from recovering market optimism and renewed Bank of England rate hike bets as the week went on.
Sterling initially came under pressure from bets on a policy tightening pause from the BoE at their next meeting. The instability in the global banking sector prompted speculation that the central bank would leave rates unchanged.
These bets were reversed on Wednesday after above-forecast UK inflation figures, which bolstered the Pound. February’s inflation printed an acceleration to 10.4% versus a forecast easing to 9.9%. Markets increasingly priced in a 25bps rate hike from the BoE.
If the central bank pushes ahead with an increase in interest rates on Thursday then Sterling could climb. If the BoE holds rates steady or signals such a move in the future then it could pull GBP lower.
USD/GBP Exchange Rate: Softer Fed Bets and Bond Yield Downturn Weigh on USD
The US Dollar Pound (USD/GBP) exchange rate fell over the past seven days. USD/GBP came under pressure from bets on a softer rate hike pace from the Federal Reserve.
The US Dollar (USD) strengthened initially as concerns of a global banking crash prompted renewed risk-off flows. The ‘Greenback’ saw its gains pared by a surprise fall in February’s PPI. This, alongside the instability in the markets, saw traders price in a policy slowdown from the Fed, which weighed on the ‘Greenback’.
An unexpected drop in consumer confidence on Friday prompted losses in the US Dollar. An improving market mood also dented confidence in USD, although improving Fed bets lent some support to the currency.
The Fed’s interest rate decision on Wednesday evening will be closely watched by investors. If the Fed does commit to a policy tightening slowdown then the US Dollar could slide.
EUR/USD Exchange Rate: Hawkish ECB Signals Bolster Euro
The Euro US Dollar (EUR/USD) exchange rate climbed over the past seven days. The pairing saw some unpredictable movements last week as the Credit Suisse saga continued.
The Euro (EUR) initially tumbled on Wednesday amid the Credit Suisse selloff. Mixed signals from the European Central Bank (ECB) also kept pressure on EUR. ECB President Christine Lagarde signalled a data-driven approach from the central bank.
The single currency found support from hawkish comments by ECB policymakers as the week went on. The news that Credit Suisse would be bought out by rival bank UBS also restored confidence in EUR.
The latest PMIs for the Eurozone could push the Euro higher if they print positively as forecast on Friday. An expected rise in German business confidence on Monday could add to EUR’s gains.