Pound Collapses as Inflation Cools, US Dollar Rallies on Strong Jobs Data

GBP/EUR Exchange Rate: Pound Craters amid Cooling Inflation

The Pound Euro (GBP/EUR) exchange rate collapsed last week, after UK inflation cooled far more than expected in June.

A fall in both headline and core inflation prompted analysts to recalibrate their expectations for the Bank of England’s (BoE) next interest rate decision. While another 50bps hike was on the cards, the expectation has shifted to a more modest 25bps hike.

With analysts now expecting rates to peak at 5.75%, Sterling was unable to capitalise on a surprise increase in retail sales.

So far this week, the Pound has rebounded against the Euro. Monday’s private sector indexes limited Sterling sentiment, but weakness in the common currency allowed GBP/EUR to strengthen.

GBP/USD Exchange Rate: Pound Crashes as Investors Pare Back BoE Hike Bets

The Pound US Dollar (GBP/USD) exchange rate crashed over the past week, as Bank of England rate hike bets dissipated.

These pared back bets contributed to a fall of nearly 2% in the GBP/USD exchange rate. Furthermore, private sector data indicated that the UK economy was close to stalling.

Elsewhere, a broadly downbeat market mood placed further pressure on the Pound, due to its increasingly risk-sensitive nature.

Later this evening, volatility could strike the pairing on the back of the Federal Reserve’s latest interest rate decision. Could hawkish forward guidance weigh on GBP/USD?

USD/GBP Exchange Rate: US Dollar Rises as Labour Market Tightens

The US Dollar Pound (USD/GBP) exchange rate strengthened over the past week, amid signs of a tight US labour market.

Initial jobless claims unexpectedly fell, indicating that the US labour market could withstand additional Fed rate hikes.

The wavering market mood provided further impetus, granting safe-haven flows to the ‘Greenback’. However, these gains were likely capped due to a muddled set of private sector indexes. While the service sector missed forecasts, manufacturing activity rose beyond forecasts.

In addition to the Fed’s latest interest rate decision, the second half of this week will also see the publication of the latest US GDP figures. Could a slowdown in growth spook markets and lead demand for the safe-haven currency to strengthen?

EUR/USD Exchange Rate: Euro Drops amid Growing Concerns over EU Economy

The Euro US Dollar (EUR/USD) exchange rate sank over the past week, as downbeat Eurozone data dented the single currency.

While an upward revision to the EU’s core inflation rate brought some strength, wavering risk appetite kept EUR in flux.

Thereafter, the Eurozone’s service and manufacturing indexes weighed heavily on the common currency. Manufacturing activity was found to have contracted at its fastest pace in three years, while service sector activity struck a six-month low.

Business morale in Germany fell further on Tuesday, hitting an eight-month low and indicated falling confidence in the bloc’s largest economy.

Looking ahead, the European Central Bank (ECB) is set to publish their latest interest rate decision. While a 25bps hike is priced in, questions remain over the ECB’s forward guidance. A hawkish policy outlook could see EUR recover.

John Mulcahey

Contact John Mulcahey


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