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Pound underpinned by BoE rate hike bets.
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Euro tumbles as softer Eurozone inflation prompts ECB bet pullback.
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US Dollar loses ground as markets coalesce on possible Fed pause.
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Risk appetite returns as US debt ceiling deal passes.
GBP/EUR Exchange Rate: Pound Supported by BoE Bets
The Pound Euro (GBP/EUR) exchange rate rose over the past seven days. The Pound (GBP) being buoyed by Bank of England (BoE) rate hike bets. GBP investors remained confident that the BoE would need to raise interest rates to a minimum of 5.5% by the end of 2023.
However, after striking a new five-month high GBP/EUR slipped on Friday amid suggestions Sterling may have entered overbought conditions.
The absence of any notable UK economic data subsequently left the GBP/EUR exchange rate to trade sideways through the first half of this week.
Looking to the week ahead, Sterling could see additional movement if markets price in any additional action from the BoE.
GBP/USD Exchange Rate: Above-Forecast Services Sector Performance Bolsters Sterling
The Pound US Dollar (GBP/USD) exchange rate traded in a wide range over the past week. Sterling rallied through the second half of last week amid elevated BoE rate hike bets.
However, GBP/USD was unable to sustain its best levels, renewed US Dollar (USD) strength coupled with confirmation the UK’s manufacturing sector suffered another month of contraction in May left the Pound vulnerable.
After some initial pressure this week, the final reading of May’s services PMI bolstered Sterling on Monday. The PMI was revised higher and was the fourth consecutive month of expansion.
The coming week is set to bring a range of high-impact data for the Pound. April’s jobs report could pull GBP lower if unemployment ticks up again and wage growth falls short of expectations. Conversely, a forecast 0.2% expansion in the UK’s economy in April could boost Sterling if Wednesday’s figures print as forecast.
USD/GBP Exchange Rate: USD Stumbles as Markets Bet on Fed Rate Hike Pause
The US Dollar Pound (USD/GBP) exchange rate slipped over the past week. The US Dollar’s initial losses came on Wednesday after the US House of Representatives passed a deal to avert a default in the country’s debt ceiling.
USD fell further on Thursday following dovish comments from multiple Federal Reserve policymakers. Markets coalesced around the prospect of a pause in policy tightening from the Fed at its June meeting.
A surprisingly strong payrolls print then revived USD at the end of last week. May’s non farm payrolls added more jobs to the US economy than forecast which prompted fresh Fed rate hike bets.
This week saw a poor ISM services PMI placed renewed pressure on the US Dollar, although a risk-off mood on Tuesday helped the ‘Greenback’ to recoup some of its losses.
Looking ahead, markets will be keenly awaiting the Fed’s interest rate decision on Wednesday. USD could see sharp losses if the central bank keeps interest rates unchanged.
EUR/USD Exchange Rate: Easing Eurozone Inflation Dampens Enthusiasm for EUR
The Euro US Dollar (EUR/USD) exchange rate fell over the past week. The Euro (EUR) declined on Wednesday as markets began to pare back their bets on further European Central Bank (ECB) policy tightening. The repricing came after softer-than-expected German inflation figures.
Similarly weak Eurozone inflation figures added to these softer bets on Thursday. EUR’s losses were cushioned by hawkish comments from ECB President Christine Lagarde.
Underwhelming data has acted as a headwind for the Euro so far this week, with an unexpected contraction in German factory orders, a stalling of Eurozone retail sales, and decline in consumer inflation expectations all weighing on EUR sentiment.
Germany’s latest ZEW economic sentiment surveys could extend the decline in EUR exchange rates early next week if June’s index reports another deterioration in sentiment.