GBP Falls as BoE’s Bailey Dents Rate Rise Bets, USD Boosted by Newfound Fed Hawkishness

  • Pound slips after BoE interest rate decision.

  • US Dollar bolstered by hawkish Fed signals.

  • Euro softens as German confidence wanes.

  • Market mood cautious amid fears of US debt ceiling collapse.

GBP/EUR Exchange Rate: Pound Slips in Wake of Dovish Bailey Comments

The Pound Euro (GBP/EUR) exchange rate declined slightly over the past seven days. The Pound (GBP) was initially subdued ahead of the Bank of England’s (BoE) interest rate decision.

GBP saw some volatile movements following the central bank’s meeting on Thursday. The currency strengthened in the immediate aftermath of the BoE’s 25bps interest rate hike. The minutes released alongside the decision hinted at additional policy tightening which also lent support to GBP.

BoE Governor Andrew Bailey’s post-announcement press conference saw the currency shed its gains, however. Bailey signalled that UK inflation was cooling quicker than previously expected.

An upbeat market mood on Monday aided the riskier Pound over the safer Euro (EUR), but sentiment then soured sending GBP/EUR lower again.

Looking ahead, a speech from BoE Governor Andrew later today could pull Sterling lower if he maintains his dovish tone. Next week, the UK’s services PMI could also impact GBP. Will service sector growth remain strong?

GBP/USD Exchange Rate: Sterling Tumbles amid Evidence of Cooler UK Labour Market

The Pound US Dollar (GBP/USD) exchange rate stumbled over the last week. The Pound stumbled following the Bank of England’s interest rate decision. The cautious comments from BoE Governor Bailey weighed on the currency.

Sterling saw some erratic movements on Friday following mixed GDP figures. The data indicated a 0.1% expansion in the UK’s economy in the first quarter of 2023 which allayed recession fears. A surprise contraction of 0.3% in March pulled the Pound lower, however.

Worse-than-expected employment data on Tuesday saw Sterling fall further. Unemployment rose unexpectedly to 3.9% whilst average wage growth increased by less than forecast. Signs of slack in the UK labour market also prompted a pullback in BoE rate hike bets.

The latest inflation figures on Wednesday could cause additional losses in GBP if they print as forecast. April’s CPI is expected to decline to 8.5% which could further dent BoE bets.

USD/GBP Exchange Rate: USD Bolstered by Fed Rate Hike Bets

The US Dollar Pound (USD/GBP) exchange rate climbed over the past seven days. The latest US inflation reading prompted some volatility in the US Dollar (USD) on Wednesday. US headline inflation cooled to 4.9%.

A pullback in global risk appetite helped the safe-haven ‘Greenback’ to recover some lost ground on Thursday. Additionally, a rise in April’s PPI strengthened Federal Reserve rate hike bets and USD alongside it.

Risk appetite continued to sour as the US debt ceiling crisis worsened. This in turn boosted USD. Hawkish comments from Fed rate setters added to the currency’s upside.

Upcoming releases from the Fed could bolster USD over the coming week if markets pick up on any tightening signals. A speech from Fed Chair Jerome Powell on Friday and the release of the Fed’s latest minutes on Wednesday are set to be key drivers.

EUR/USD Exchange Rate: Euro Slips as German Recession Fears Grow

The Euro US Dollar (EUR/USD) exchange rate slumped over the course of the past week. Mixed signals from European Central Bank (ECB) policymakers kept the Euro (EUR) in a narrow range on Wednesday.

However, a rise in Eurozone consumer inflation expectations inspired fresh ECB rate hike bets. This buoyed EUR.

A larger-than-forecast decline in the Eurozone’s industrial sector pulled the Euro lower on Monday. EUR’s downturn was limited by upgraded growth forecasts from the European Commission, though.

Finally, German recession fears hobbled EUR on Tuesday. The German ZEW economic sentiment index saw a sharp decline to -10.7 in May, although the Euro’s losses were cushioned by upbeat jobs data.

A slight downturn in Germany’s Ifo business climate figures on Wednesday could deepen fears of a recession in the Eurozone’s largest economy. This could in turn keep pressure on EUR.

Gareth Monk

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