Pound Rises in Risk-On Trade, US Dollar Collapses as CPI Cools Sharply

GBP/EUR Exchange Rate: Pound Tepid amid Dovish BoE Remarks

The Pound Euro (GBP/EUR) exchange rate remained largely muted through the second half of last week, amid dovish comments from the Bank of England (BoE).

BoE Chief Economist Huw Pill stated on Thursday that further tightening was unneeded to curtail inflation, bringing renewed headwinds.

Sterling remained subdued on Friday, amid news that the UK’s economy had stagnated in the third quarter. While better than forecasts of a 0.1% contraction, it still proved bleak reading for the UK economy.

GBP/EUR has then proven volatility in the first half of this week in response to some mixed UK data.

On Friday, the UK’s latest retail sales data is due to print. Economists anticipate a 0.3% expansion in October. Signs of improving consumer spending could lift Sterling.

GBP/USD Exchange Rate: Pound Rallies amid Jovial Market Mood

The Pound US Dollar (GBP/USD) exchange rate strengthened at the beginning of this week, due to sharp rise in risk appetite.

Monday saw GBP exchange rates remain rangebound, amid a lack of data.

However, Tuesday’s upbeat UK jobs data served to support Sterling. Unemployment held at 4.2%, with wage growth remaining elevated in September. This saw the increasingly risk-sensitive Pound leap against most major peers, in tandem with a cheery market mood.

The subsequent release of the UK’s consumer price index then reversed some of these gains as inflation was shown to have cooled at a faster-than-expected pace in October.

Next week, UK Chancellor Jeremy Hunt is due to unveil his Autumn Statement. Hunt has signalled this to be a ‘budget for growth’, which could strengthen Sterling if investors support his vision.

USD/GBP Exchange Rate: US Dollar Collapses as Inflation Cools

The US Dollar Pound (USD/GBP) exchange rate sank over the last seven days, amid a sharp cooldown in US inflation.

Wednesday saw the US Dollar waver, as the market mood shifted. Initial gains brought about by risk-averse trade were trimmed as the market mood improved.

However, Federal Reserve Chair Jerome Powell delivered a hawkish speech on Thursday, opening the door for further tightening. This saw USD rally amid revitalised interest rate hike bets.

The ‘Greenback’ carried this momentum forward on Friday, despite falling consumer confidence levels.

However, a shift towards risk-on trade during Monday’s session saw the US Dollar begin to walk back some of these gains, though an uptick in US treasury yields prevented steeper falls.

Both core and headline inflation cooled beyond expectations on Tuesday, which prompted USD to plunge against its peers.

On Wednesday, a cheery beginning to the day prevented the ‘Greenback’ from gaining a foothold against its peers.

Next Tuesday, the latest FOMC meeting minutes are due to print. With the Federal Reserve’s path forward seeming unclear, hawkish suggestions could spark renewed tightening bets and lift USD exchange rates.

EUR/USD Exchange Rate: Euro Climbs as US Dollar Slides

Trade in the Euro US Dollar (EUR/USD) exchange rate was rangebound for most of the week, before a sharp climb on Tuesday.

Last Wednesday, German inflation cooled in September alongside a larger-than-expected contraction in Eurozone retail sales. The bleak readings served to undermine EUR exchange rates.

The bloc’s economic outlook remained in focus on Thursday, with the gloomy outlook weighing on the common currency.

Risk-averse trade brought some tailwinds for EUR on Friday, but a light data calendar limited the currency’s upside.

The Euro remained subdued at the beginning of the week, as the lull in macroeconomic releases continued.

While the German ZEW economic sentiment index recovered above expectations, the Euro was unable to capitalise as bullish trade emerged,

On Wednesday, underwhelming Eurozone trade data prevented the common currency from finding a clear direction.

On Friday, ECB President Christine Lagarde is scheduled to deliver a speech. If she continues the ECB’s dovish tone, EUR could weaken.

John Mulcahey

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