Pound Drops as PMI Points to Cooling Inflation, Euro Boosted by Hawkish ECB Comments

  • Pound wobbles lower amid lack of data.

  • US Dollar pushed higher by renewed Fed bets.

  • Euro capitalises on strong private sector data.

  • Easter holiday sees markets close.

GBP/EUR Exchange Rate: Pound Dips amid Thin Trading Conditions

The Pound Euro (GBP/EUR) exchange rate saw erratic movements over the past seven days. The pairing ultimately trended lower as the week went on.

The Pound (GBP) found strength throughout much of the week from Bank of England (BoE) rate hike bets. Hawkish comments from BoE Chief Economist Huw Pill added to this outlook.

A lack of data and the UK’s Easter holiday left Sterling vulnerable to losses between Friday and Monday. A worsening market mood prompted deeper losses for GBP against its safer peers. Forecasts from the International Monetary Fund (IMF) of a contraction in the UK’s economy also weighed on Sterling.

The Pound may continue to be affected by BoE policy expectations. Speeches from Governor Andrew Bailey, Huw Pill and policymaker Silvana Tenreyro could impact Sterling, with broadly hawkish comments likely to lift GBP.

GBP/USD Exchange Rate: Sterling Edges Lower after Evidence of Easing Inflation

The Pound US Dollar (GBP/USD) exchange rate slipped over the past week. Sterling fell on Wednesday despite an upbeat final reading of March’s services PMI. The data indicated an easing of business inflationary pressures. Markets took this as a sign of a possible slowdown from the BoE.

GBP struggled to attract bets from Friday to Monday due to a national holiday in the UK. A lack of significant data saw thin trading conditions for Sterling, with a cautious market mood weighing on the currency.

Upbeat sales figures for the UK’s retail sector lent some support to the Pound. The British Retail Consortium’s (BRC) latest figures printed an above-forecast rise in March’s sales volumes.

The latest GDP data could buoy the Pound if Thursday’s figures print as forecast. The UK economy is expected to have expanded by 0.1% in February. On the other hand, a predicted rise in unemployment on Tuesday could dent confidence in GBP.

USD/GBP Exchange Rate: US Dollar Bolstered by Strong NFP Data

The US Dollar Pound (USD/GBP) exchange rate rose over the past week. The US Dollar (USD) first weakened on Wednesday as manufacturing sector output printed below forecasts. Additionally, ADP employment figures disappointed markets. Conversely, the poor US data prompted a risk-off mood which bolstered USD.

Strong jobs data at week’s end gave the US Dollar a further lift. The latest jobless claims edged lower whilst non-farm payrolls for March beat forecasts. The data releases indicated a still-tight US labour market, which boosted bets on additional Federal Reserve interest rate hikes.

USD trimmed some of its gains on Tuesday amid a return of risk appetite, however. The currency also saw bets retreat ahead of crucial inflation data on Wednesday.

The US Dollar could possibly firm today if core inflation ticks higher as forecast. The release of the latest Federal Open Market Committee (FOMC) minutes later could pull USD lower if they indicate a slowdown in policy tightening from the Fed.

EUR/USD Exchange Rate: Euro Finds Support from Hawkish ECB Comments

The Euro US Dollar (EUR/USD) exchange rate saw some volatile movements over the past week, although it managed to regain lost ground as the week went on. The Euro (EUR) struggled to make any significant gains on Wednesday amid a resurgent US Dollar.

EUR’s downside was limited by positive Eurozone data, though. German factory orders rose well above forecasts, whilst the final reading of the trading bloc’s services PMI confirmed healthy expansion in the sector.

The Euro found additional strength on Thursday after an above-forecast increase in German industrial production. Hawkish comments from European Central Bank (ECB) policymaker Klaas Knot also helped EUR to make gains. The single currency’s gains were capped by a contraction in Eurozone retail sales on Tuesday, however.

Looking to the next seven days for EUR, a rise in German economic sentiment on Tuesday could prompt an upside in the Euro. Russia-Ukraine news could also impact EUR.

Gareth Monk

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