GBP/EUR Exchange Rate: Pound Volatile as Overtightening Fears Linger
Trade in the Pound Euro (GBP/EUR) exchange rate was highly volatile late last week amid growing concerns over the pace the Bank of England (BoE) may tighten monetary policy.
Owing to a lack of impactful data, the focus remained on the BoE’s policy outlook. Comments from the BoE Governor Andrew Bailey did little to assuage these fears, as he stated there was more to be done to bring inflation under control.
However, confirmation that the UK had avoided a winter recession brought some cheer to GBP investors last Friday.
So far this week, the Pound has managed to gain ground against the Euro. While the prospect of overtightening remains, bets on another 50bps hike in August have seen Sterling rally. However, the lack of data drivers appears to have capped these gains.
GBP/USD Exchange Rate: Pound Cushioned by Bullish Trade
The Pound US Dollar (GBP/USD) exchange rate saw choppy trade over the past week, as the focus remained on the UK economy.
Earlier this week, confirmation UK manufacturing activity softened in June added to the Pound’s economic woes.
However, a bullish market mood has helped to underpin Sterling. With GBP holding an increasingly risk-sensitive nature, the improvement in sentiment pushed GBP/USD higher.
Moving into the week ahead, the UK’s latest jobs report could weigh on Sterling. May’s release is forecast to show an increase in unemployment, rising to 3.9%, and a cooling of wage growth.
USD/GBP Exchange Rate: US Dollar Muted despite Elevated Rate Hike Bets
The US Dollar Pound (USD/GBP) exchange rate fluctuated over the past week, as market closures muted rate hike bets.
Initially, the ‘Greenback’ was buoyed by hawkish comments from Federal Reserve Chair Jerome Powell. He indicated that a ‘strong majority’ of Fed officials saw two or more rate hikes by the end of the year.
Bets on further tightening were reinforced by an upward revision to US GDP, lifting the US Dollar higher. However, these were undermined at the end of the week by a surprise cooldown in the core PCE index – the Fed’s preferred inflation gauge.
The US Dollar was initially dented this week by a worse-than-forecast ISM manufacturing index reading. Furthermore, Independence Day saw US markets closed on Tuesday, yielding thin trade for the ‘Greenback’.
Looking ahead, Friday’s non farm payrolls data will be in focus. A sharp drop is currently forecast, falling from 339000 to 225000 in June. Will signs of a softening labour market weaken Fed rate hike bets and pull USD lower?
EUR/USD Exchange Rate: Euro Undermined by Cooling Inflation
The Euro US Dollar (EUR/USD) exchange rate stumbled over the past week, as persistent downbeat data weighed on the Euro.
Initially, hawkish comments from European Central Bank (ECB) President Christine Lagarde brought some tailwinds for the common currency. However, these gains were unwound by downbeat German consumer confidence data.
Further dampening EUR was a below-forecast cooldown in inflation, which led EUR investors to pare rate hike bets.
Confirmation that factory activity within the Eurozone had contracted at the fastest rate in three months dented EUR further. However, owing to a weakening US Dollar, the single currency was able to recover some losses due to their negative correlation.
Looking ahead, next Tuesday sees the release of the ZEW economic sentiment index for Germany. In July, a fall in sentiment is forecast, which could weigh heavily on the single currency as the bloc’s largest economy continues to struggle.