GBP/EUR Exchange Rate Fluctuates Near Nine-Month High amid BoE Speculation
The Pound Euro (GBP/EUR) exchange rate fluctuated over the past seven days, striking a fresh nine-month high before relinquishing its gains.
The initial strength came as markets bet on more hawkish action from the Bank of England (BoE), following hotter-than-forecast employment data and a recovery in UK GDP earlier last week. Some investors began betting on a larger 50bps hike from the bank this week.
However, the prospect of significantly higher interest rates raised concerns about the UK economy. Analysts warned that if rates hit 6%, it could tip the UK into a recession. This saw GBP/EUR slash its gains, with the pair slumping after UK inflation exceeded forecasts.
Looking ahead, the BoE decision is in the spotlight. A larger half-point hike could see Sterling jump higher. However, if the bank raises concerns about the impact of higher borrowing costs on the UK economy, the Pound (GBP) could find its gains limited.
GBP/USD Exchange Rate Retreats from 14-Month High as Sentiment Sours
The Pound US Dollar (GBP/USD) exchange rate strengthened through the latter part of last week’s trade, with BoE bets and an improving market mood favouring the risk-sensitive UK currency over the safe-haven ‘Greenback’.
After hitting a 14-month high on Friday, GBP/USD then started to head lower after the weekend, with Sterling struggling to hold its gains amid a lull in UK economic data.
A souring mood added to the pressure on the pairing. Markets grew increasingly concerned about the health of the global economy, with evidence of stuttering growth in both the US and China – the two largest economies in the world.
Concerns about the UK’s domestic economy also weighed on GBP/USD.
Coming up, a number of high-impact data releases on Friday should give an indication of the health of the British economy. A forecast contraction in retail sales, along with weakening service sector activity and an ongoing decline in manufacturing, could see the Pound slide.
USD/GBP Exchange Rate Recoups Losses following Post-Fed Slump
The US Dollar Pound (USD/GBP) exchange rate fell to a 14-month low last week as widening policy divergence between the BoE and the Federal Reserve weighed heavily on the pairing.
The Fed opted to leave interest rates unchanged at its most recent policy meeting, and although the central bank said it would raise rates again, this provided only a temporary relief to USD.
The day after the decision, US jobless claims exceeded expectations, indicating that the labour market was cooling and thereby denting Fed bets.
Through this week’s trade, the US Dollar (USD) managed to regain some ground amid a souring market mood. Recovering Fed bets also aided the American currency, amid expectations that the bank will deliver more rate rises in the future.
Monetary policy expectations could continue to drive the US Dollar over the coming days. Several Fed policymakers, including Chair Jerome Powell, are due to speak. If they reiterate expectations for further rate rises, USD could climb.
EUR/USD Exchange Rate Rallis on Hawkish ECB
The Euro US Dollar (EUR/USD) exchange rate rallied to a one-month high last week, with the single currency initially finding support thanks to upbeat Eurozone industrial data.
A hawkish hike from the European Central Bank (ECB) then propelled the Euro (EUR) higher. The ECB raised rates by 25bps and said that further hikes are likely in the months ahead, quashing rumours that the bank was considering a policy pause.
As this week’s session began, EUR/USD softened slightly amid a contraction in German PPI – an indication of easing inflationary pressures. However, ongoing hawkish comments from ECB officials cushioned the downside.
Over the next seven days, EUR investors will be keeping an eye on Eurozone data to gauge the health of the bloc’s economy. Weaker PMI readings could dent the common currency on Friday, while a drop in German business sentiment could see EUR stumble at the start of next week.