Pound Undermined by Poor Data, US Dollar Rises on Renewed Fed Hike Bets

GBP/EUR Exchange Rate: Pound Dented as UK Outlook Deteriorates

The Pound Euro (GBP/EUR) exchange rate seesawed over the past week, amid disappointing UK data releases.

Following a shock 0.5% contraction in UK GDP in July, Sterling weakened sharply. However, a slow shift towards risk-on trade allowed it to claw back some losses.

This was followed by a sharp increase in UK company insolvencies, as high interest rates began to bite down on UK businesses. The release served to emphasise the increasingly bleak outlook for the UK economy, weakening GBP rates.

Looking ahead, the Bank of England (BoE) are expected to hike rates by another 25bps on Thursday. Further tightening hereafter remains up in the air, however. If the BoE provide hawkish forward guidance Sterling could rally.

GBP/USD Exchange Rate: Pound Wavers as Investors Pare BoE Bets

The Pound US Dollar (GBP/USD) exchange rate sank over the past seven days, as investors pared back bets on further tightening from the BoE.

On the back of last week’s series of downbeat data, Sterling limped out of the gates this week. The focus shifted towards the BoE’s incoming interest rate decision, keeping trade muted.

However, GBP began to fall this morning after a surprise cooldown in both core and headline inflation. This led to investors paring bets on further tightening from the BoE.

Next week, data releases are in short supply for the Pound. Because of this, direction is likely to be provided by the fallout from the BoE’s interest rate decision.

USD/GBP Exchange Rate: US Dollar Boosted by Strong Economic Data

The US Dollar Pound (USD/GBP) exchange rate climbed through the past seven days, amid renewed Federal Reserve rate hike bets.

In the latter half of last week, the US Dollar (USD) saw erratic trade, amid a mixed set of inflation data. While USD initially rallied amid hotter-than-forecast headline inflation data, these gains were reversed by cooling core inflation.

Strong retail sales and PPI data brought cheer to USD investors on Friday, and prompted increased Fed rate hike bets.

Thus far, the ‘Greenback’ has seen muted trade as investors shifted focus to the Fed’s interest rate decision.

Tonight, the Fed is scheduled to announce its latest interest rate decision. Could a hawkish hold propel the ‘Greenback’ higher?

EUR/USD Exchange Rate: Euro Slides as ECB Delivers Possible Final Hike

The Euro US Dollar (EUR/USD) exchange rate plunged over the past week, as the European Central Bank (ECB) signalled the potential end of its tightening cycle.

While the ECB delivered a 25bps hike as expected, it indicated that interest rates were restrictive. As such, EUR investors erased their bets on further tightening, severely weakening EUR.

However, some dip-buying allowed the common currency to enjoy small gains against some peers. Mixed comments from ECB policymakers served to mute EUR movement earlier this week.

Yesterday, August’s final Eurozone consumer price index print was revised lower. This confirmed to investors that the ECB had likely delivered its final hike, as inflation continued to cool, which dented EUR.

Looking ahead, the Euro could face significant pressure in the latter half of this week, if the Eurozone’s latest PMIs report activity in the bloc continued to contract at a worrying pace.

John Mulcahey

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