GBP/EUR Exchange Rate: Pound Strengthens amid Elevated Rate Hike Bets
The Pound Euro (GBP/EUR) exchange rate rallied through the second half of last week due to increased Bank of England (BoE) rate hike bets.
While overtightening concerns continued to linger, Sterling sentiment strengthened amid a growing consensus that a 50bps hike was on the cards.
Eyeing a terminal rate of up to 6.5%, Sterling was able to shrug off a lack of data releases to hold fast against its peers.
So far this week, the Pound whipsawed against the Euro. Tuesday’s wage growth data sparked further tightening bets, allowing GBP/EUR to climb and recover from initial losses linked to bearish trade.
GBP/USD Exchange Rate: Pound Soars on Red Hot Wage Growth Data
The Pound US Dollar (GBP/USD) exchange rate soared over the past week as a record rise in UK wages was seen as stoking inflationary pressures.
May’s average earnings data eclipsed forecasts, showing that pay growth in the UK struck a new record high of 7.3%. Given the BoE’s recent focus on the relationship between wages and inflation, this led GBP investors to more aggressively price in a 50bps hike from the bank next month.
GBP/USD was subsequently propelled to a 15-month high, as these tightening bets nullified any concerns brought by an unexpected rise in unemployment.
Moving into the week ahead, the UK’s latest GDP data could erase some of these dramatic gains. Economists forecast a 0.3% contraction of growth in May, which may spark recession anxieties.
USD/GBP Exchange Rate: US Dollar Weakens amid Signs of Loosening Labour Market
The US Dollar Pound (USD/GBP) exchange rate weakened over the past week, following disappointing US payrolls data.
Initially, the ‘Greenback’ was buoyed by the hawkish attitude shown in the latest FOMC minutes. However, as these lacked new information on future hikes, the effect was muted.
The US Dollar climbed further as ADP employment change figures and the ISM services index smashed forecasts. Investors began to bet that the US economy could withstand further rate hikes.
Last Friday’s non farm payrolls proved a bitter pill for USD, however. June’s figures printed far below expectations, indicating a slowing labour market. A subsequent weakening of Federal Reserve interest rate expectations left the US Dollar on the back foot through the first half of this week.
This afternoon, the US Dollar could weaken further if June’s consumer price index data prints in line with forecasts. Both headline and core inflation are expected to cool sharply, which may further weaken Fed rate hike bets.
EUR/USD Exchange Rate: Euro Drops amid Growing Concerns over German Economy
The Euro US Dollar (EUR/USD) exchange rate dropped over the past week, amid growing concerns over the bloc’s largest economy.
Initially, bearish trade allowed the single currency to strengthen, but any ground was swiftly relinquished on a weak services PMI. While German factory orders eclipsed forecasts, lacklustre retail sales capped the upside.
The Euro largely traded on German data hereafter, with a fall in industrial production weighing on EUR. However, a sell-off in the US Dollar strengthened EUR/USD, due to the pairing’s negative correlation,
Economic morale in Germany fell further on Tuesday, further amplifying fears over the bloc’s largest economy.
Looking ahead, the data calendar for the Eurozone is relatively light. Because of this, the common currency could be left vulnerable to shifts in risk appetite. As a safe-haven currency, a move towards bullish trade could weigh on EUR rates.