Pound Slips on Bleak Economic Outlook, US Dollar Rallies amid Fed Hike Bets

GBP/EUR Exchange Rate: Pound Crumbles amid Downbeat UK Outlook

The Pound Euro (GBP/EUR) exchange rate crashed over the past week, as the UK’s economic outlook darkened.

Sterling took a dive following the publication of the latest private sector indexes, which signalled contractions in both service-sector and manufacturing activity.

This weakness was compounded on Thursday after the Confederation of British Industry (CBI) released its latest distributive trades data. This showed that UK retail sales had slumped at the fastest rate in two years in August, further amplifying worries over the state of the UK’s economy.

GBP investors will now focus on an upcoming speech from Bank of England (BoE) Chief Economist Huw Pill. If he strikes a cautious note following the recent downbeat data, Sterling could fall further.

GBP/USD Exchange Rate: Pound Stumbles as Markets Pare BoE Bets

The Pound US Dollar (GBP/USD) exchange rate weakened over the last seven days amid a slight pullback in BoE interest rate hike bets.

Following the UK’s recent raft of downbeat data releases, markets began to trim their expectations for more BoE rate rises. As well as showing contracting business activity, the latest PMIs contained signs of easing inflation.

Thin trading conditions through the first part of this week saw Sterling trade on risk appetite. An improving mood helped the riskier Pound (GBP) rise against the US Dollar (USD).

Over the next week, data releases for the Pound remain in short supply. Because of this, risk appetite may be the core catalyst of movement. Could bullish trade boost the increasingly risk-sensitive currency?

USD/GBP Exchange Rate: US Dollar Rallies amid Increased Fed Rate Hike Bets

The US Dollar Pound (USD/GBP) exchange rate rose last week amid renewed Federal Reserve rate hike bets.

Despite an initial wobble on the back of worrying private sector indexes, the ‘Greenback’ managed to recover. Investors began to bet on further tightening from the Fed following a surprise drop in initial jobless claims.

These bets were pushed higher on Friday following hawkish comments from Fed Chair Jerome Powell during his keynote speech at the Jackson Hole Symposium. Powell indicated that inflation was ‘too high’ and that further rate hikes could be en route.

On Thursday, the Fed’s preferred inflation gauge is due to print, reflecting July’s data. The core PCE price index is forecast to have increased to 4.2%, which may send USD soaring on further rate hike bets.

EUR/USD Exchange Rate: Euro Wavers amid Downbeat Economic Data

The Euro US Dollar (EUR/USD) exchange rate traded in a wide range over the past week, as the Eurozone’s economic outlook deteriorated.

The bloc’s service sector was found to have unexpectedly contracted, prompting weakness against most major peers last Wednesday. However, due to the pairing’s negative correlation, the Euro (EUR) was able to grind higher on Thursday as USD stumbled.

German data continued to disappoint EUR investors on Friday, following a deterioration in the business climate indicator. Volatility continued following a surprise fall in German consumer confidence on Tuesday.

Looking ahead, the latest Eurozone consumer price index is scheduled to print on Thursday. In August, inflation is forecast to have cooled to 5.1%, which may weaken EUR by dampening further tightening bets.

John Mulcahey

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