GBP/EUR Exchange Rate: Pound Falls amid Downbeat Economic Outlook
The Pound Euro (GBP/EUR) exchange rate stumbled over the past week, as the UK’s latest GDP data proved underwhelming.
Sterling initially posted small gains as renewed Bank of England (BoE) interest rate expectations buoyed GBP exchange rates.
However, Thursday saw GBP slip as while August’s GDP reading indicated a 0.2% expansion, July’s print was revised lower to -0.6%. stoking concerns that the UK is still headed for a recession.
The outlook clouded further on Friday, as company solvencies were found to have spiked by 17% in England and Wales. Additionally, UK Chancellor Jeremy Hunt warned of ‘challenges’ ahead for the country.
Looking ahead, the UK will publish September’s retail sales data on Friday. Economists forecast a fall of 0.2%, which could weaken GBP exchange rates.
GBP/USD Exchange Rate: Pound Ticks Up despite Cooling Wage Growth
The Pound US Dollar (GBP/USD) exchange rate wavered higher so far this week, despite unconvincing data releases.
Monday saw Sterling lack clear direction, as markets looked ahead to impactful data due later in the week. However, hawkish comments from BoE Chief Economist Huw Pill served to underpin GBP as he suggested interest rates could rise in the future.
Wage growth was found to have slowed in the three months to August, dropping from July’s upward revision of 7.9% to 7.8%. This served to wrong-foot Sterling, as it suggested another hike from the BoE was unlikely. Furthermore, signs of slack began to appear in the UK jobs market, further capping GBP.
While the UK’s inflation data beat forecasts, investors appear unconvinced that it was enough to lock in another hike.
Next week, the UK’s latest unemployment figures are due for print, following a week-long delay. Forecasts anticipate the jobless rate will have held at 4.3% in August, will this be enough to support Sterling?
USD/GBP Exchange Rate: US Dollar Strengthens amid Sticky US CPI
The US Dollar Pound (USD/GBP) exchange rate strengthened over the last seven days, amid signs of sticky US inflation.
At the start of the week’s session, dovish comments from Federal Reserve officials limited the US Dollar’s appeal. A focus on how long interest rates need to be held at restrictive levels diminished bets on further tightening.
The ‘Greenback’ then leapt higher, following the publication of September’s consumer price index. Headline inflation held steady, as opposed to cooling as forecast. This prompted renewed hike bets, buoying USD.
Escalating violence between Hamas and Israel soured the market mood last Friday, bringing safe-haven flows to the ‘Greenback’.
On Monday, Fed hike bets began to fade, undermining the US Dollar alongside an improving market mood.
Choppy trade struck the ‘Greenback’ yesterday, despite stronger-than-forecast retail sales data.
Tomorrow evening, Fed Chair Jerome Powell is due to deliver a speech. If he strikes a hawkish tone, the ‘Greenback’ could strengthen amid renewed tightening bets.
EUR/USD Exchange Rate: Euro Oscillates amid Mixed ECB Messaging
Trade in the Euro US Dollar (EUR/USD) exchange rate fluctuated over the past seven days.
Falling USD exchange rates served to support the common currency at the beginning of the week. However, these gains were offset by dovish comments from European Central Bank (ECB) policymakers.
The common currency managed to recover following the publication of the latest ECB minutes, which rang more hawkish than anticipated. Upside risks to inflation suggested to policymakers that future hikes could be needed.
Yet, a mixed picture emerged. ECB President Christine Lagarde delivered a dovish speech, weighing on the Euro. This served to undermine better-than-forecast industrial production data.
Softness in the US Dollar has served to cushion EUR recently, with improving German investor morale bringing further strength.
Looking ahead, next week sees the release of the latest Eurozone private sector indexes. Economists anticipate improvements in both services and manufacturing indexes in October, but for the sectors to remain in contraction. This could weigh on the common currency.