GBP/EUR Exchange Rate: Pound Plummets on BoE Rate Pause
The Pound Euro exchange rate fell sharply over the past seven days, with the bulk of these losses resulting from the Bank of England’s (BoE) latest interest rate decision.
Sterling tumbled as the BoE announced it would be leaving interest rates on hold for the first time in almost two years. The decision didn’t come as a total surprise as it came hot on the heels of a weaker-than-expected UK inflation print, which saw the odds of a hike plunge from 80% to below 50%.
However, the Pound’s losses were tempered as the BoE left the door open for a potential rate hike in the future. Coupled with the hawkish 5-4 split of the Monetary Policy Committee, this buoyed hopes that rates may not have peaked just yet.
Looking ahead, the only GBP data of note this week will be the UK’s latest GDP figures. However, unless the finalised figures diverge from the previous estimate any impact on the Pound is likely to be negligible.
GBP/USD Exchange Rate: Sterling Undermined by Recession Fears
The Pound US Dollar exchange rate plummeted to a new six-month low over the past week, as Sterling extended its post-BoE selloff amid an increasingly gloomy outlook for the UK economy.
This was initially driven by the publication of the UK’s latest PMIs at the end of last week. September’s preliminary figures showed a worrying slump in UK service sector activity, which gave rise to fresh recession fears and weakened BoE rate hike expectations.
The downside in GBP/USD was then reinforced through the first half of this week amid some bleak forecasts for the UK economy. Analysts warned of ‘renewed signs of stress’ and that the UK economy is ‘close to stagnation’.
With GBP data thin on the ground, the Pound may be vulnerable to further losses if investors remain pessimistic regarding the UK’s economic trajectory.
USD/GBP Exchange Rate: US Dollar Rallies in Downbeat Trade
The US Dollar Pound exchange rate was catapulted higher over the past seven days, climbing to its bests levels since late March.
This was initially driven by the Federal Reserve’s latest interest rate decision. A ‘hawkish pause’ saw the Fed signal that it would raise interest rates at least once more in 2023 and that it would cut rates at a slower pace than previously thought in 2024.
USD exchange rates then continued to press higher in the second half of last week as a souring market mood saw investors favour the safe-haven currency.
This trend persisted into this week, as fears of a possible US government shutdown rattled investors and drove more of them to the safety of the ‘Greenback’.
In the spotlight later this week will be the publication of the latest core PCE price index. As the Fed’s preferred indicator for inflation, the US Dollar may relinquish some ground if August’s index reports a deceleration in price growth as this could dampen Fed rate hike bets.
EUR/USD Exchange Rate: Euro Undermined by USD Strength
The Euro US Dollar exchange rate shed almost two cents over the past week, with the pairing’s strong negative correlation resulting in the single currency struggling to hold its ground amid notable USD demand.
Also damaging the Euro’s prospects was the publication of the Eurozone’s latest PMI figures as they showed the bloc’s private sector continued to contract in September, albeit at a slower pace than previously.
EUR exchange rates remained under pressure at the start of this week as Germany’s latest IFO business climate index reported business morale continued to deteriorate this month.
Still to come this week is the release of the Eurozone’s consumer price index. If September’s preliminary CPI figures report inflationary pressures in the Eurozone continue to ease, this could erase any lingering hopes for another interest rate hike from the European Central Bank (ECB) and pull the Euro lower.