Pound Cushioned by BoE Rate Hike Bets, US Dollar Rallies amid Sticky Core CPI

GBP/EUR Exchange Rate: Pound Seesaws amid Central Bank Divergence Bets

The Pound Euro (GBP/EUR) exchange rate traded in a wide range over the last seven days, as expectations of central bank divergence supported GBP.

Despite limited UK data, GBP was able to capitalise on bullish trade last Wednesday. This was further supported by perceptions of growing divergence between the central banks. With the Bank of England (BoE) expected to continue hiking interest rates after their peers have paused.

However, these bets were undercut by a vague speech from BoE Chief Economist Huw Pill. While he asserted the bank’s commitment to cutting inflation, he was vague regarding monetary policy, which dragged on GBP.

With data releases in short supply through to the end of the week, Sterling may be left vulnerable to continued analysis of the UK economy. Recent news has painted a bleak picture, and further downbeat readings may weigh on GBP.

GBP/USD Exchange Rate: Pound Undermined by UK Economic Woes

The Pound US Dollar (GBP/USD) exchange rate weakened over the past week, as investors explored the UK’s economic outlook.

Yesterday, the final print of August’s service PMI confirmed a contraction in the vital sector of the UK economy. When taken in conjunction with poor manufacturing readings, investors began to grow worried about the prospect of a recession.

Furthermore, wavering levels of risk appetite have kept GBP muted against the safe-haven US Dollar (USD).

Next week, Sterling is set to see a series of impactful data releases. Firstly, the latest wage growth data is set to print. If salaries continue to climb, it may bring about further bets on tightening from the BoE, boosting GBP rates.

USD/GBP Exchange Rate: US Dollar Rises amid Signs of Sticky Core Inflation

The US Dollar Pound (USD/GBP) exchange rate swung higher over last week’s session, as sticky core inflation outweighed poor labour data.

Following a surprise fall in ADP employment figures, the US Dollar fell against most of its major peers. In tandem with other jobs market data, the impression grew that slack was emerging in the US labour market.

The ‘Greenback’ was able to recover, however, following an uptick in the core PCE price index. This reaffirmed bets on further rate hikes from the Federal Reserve, by indicating sticky core inflation.

Weak payroll figures briefly reversed these gains, but USD was able to mount a recovery on the back of stronger-than-forecast manufacturing data from ISM.

Later today, August’s ISM services PMI is scheduled for publication. Activity is forecast to have slowed in the services sector, which could weaken the ‘Greenback’.

EUR/USD Exchange Rate: Euro Slides as Economic Data Disappoints

The Euro US Dollar (EUR/USD) exchange rate sank over the past week, as disappointing economic releases weighed on the single currency.

While a surprise increase in German inflation brought some strength, these gains were swiftly erased. Core inflation in the Eurozone was found to have cooled, which led to pared back rate hike bets.

The perception that the European Central Bank (ECB) is nearing the end of its current tightening cycle weighed on EUR.

Further weakness came yesterday, following a decline in the Eurozone’s producer price index and the service sector index being revised lower. While inflation appears to be cooling, the bloc’s economy is on a knife-edge, denting the common currency.

Next week, the ZEW economic sentiment index for September is due to print, reflecting sentiment amongst German businesses. Economists anticipate a modest uptick, which could lift EUR somewhat.

John Mulcahey

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