Pound Volatile Following BoE Rate Hike, US Dollar Unable to Capitalise on Global Recession Jitters

GBP/EUR Exchange Rate: Pound Volatile amid Growing Recession Anxieties

Trade in the Pound Euro (GBP/EUR) exchange rate was highly volatile late last week amid UK recession fears.

While a shock jump in the core consumer price index initially saw Sterling spike, this gave way to concerns over the potential impact of higher interest rates.

This was further compounded following the Bank of England’s (BoE) bumper 50bps hike on Thursday. The moved stoked expectations rates will peak at 6%, inflaming concerns that the BoE will tip the UK into a recession to curtail inflation.

Thus far this week, Sterling has ticked lower against the Euro. Monday’s unexpected drop in sales volumes, according to the Confederation of British Industry (CBI) has weighed on GBP. Furthermore, a lack of other notable data has sapped sentiment towards Sterling.

GBP/USD Exchange Rate: Pound Wavers amid Mixed Private Sector Data

The Pound US Dollar (GBP/USD) exchange rate traded in a wide range over the past week, as the focus remained on the UK economy.

Sterling was able to rebound from some anxiety-driven losses last Friday, on news that UK retail sales risen in May. However, this was swiftly tempered by less-than-stellar private sector indexes. These indicated that both manufacturing and services sectors had cooled further than forecast in June.

This week, GBP/USD has wavered amid shifting market sentiment. Tuesday’s risk-on trade served to underpin Sterling against the safe-haven ‘Greenback’.

Later this week, the data calendar is set to remain light. Because of this, market risk dynamics may continue to drive GBP exchange rates.

USD/GBP Exchange Rate: US Dollar Muted despite Rising Global Recession Fears

The US Dollar Pound (USD/GBP) exchange rate wavered over the past week, as global recession anxieties ebbed and flowed.

Initially, the ‘Greenback’ was capped as investors struggled to gauge the Federal Reserve’s path forward. While a resumption in July is on the cards, Fed Chair Jerome Powell’s testimony did little to inspire USD bulls.

Furthermore, downbeat PMI releases last Friday initially sapped sentiment towards the US Dollar. However, fears of a wider global slowdown, quickly revived demand for the safe-haven currency.

So far this week, the US Dollar has continued to be driven by market sentiment, leading USD exchange rates to fluctuate as risk appetite wavered.

Looking ahead, Friday’s core PCE price index data will be in the spotlight. With a hold at 4.7% forecast for the Fed’s preferred inflation gauge, rate hike bets could strengthen USD.

EUR/USD Exchange Rate: Euro Buoyed by Hawkish ECB Rhetoric

The Euro US Dollar (EUR/USD) exchange rate strengthened over last week, as elevated European Central Bank (ECB) rate hike bets buoyed EUR.

Hawkish comments from ECB policymakers served to provide continued support for the common currency.

This helped it to bounce back from last Friday’s sobering PMIs as they reported the sharpest contraction in the Eurozone’s manufacturing sector for three years.

ECB President Christine Lagarde’s speech at the Sintra Forum brought renewed vitality to the common currency on Tuesday.

Looking ahead, Friday sees the release of the latest Eurozone inflation data. Core inflation is forecast to tick higher to 5.5%, which could set rate hike bets in overdrive, boosting EUR.

John Mulcahey

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