Pound Dented by Cooling Inflation, US Dollar Slips amid Fading Fed Hike Bets

GBP/EUR Exchange Rate: Pound Slides as UK Inflation Cools

The Pound Euro (GBP/EUR) exchange rate crumbled at the beginning of last week, following cooler-than-expected UK inflation data.

Both the headline and core rates eased more than forecast, prompting scaled back Bank of England (BoE) interest rate hike bets.

Hawkish comments from BoE rate-setter Megan Greene provided some strength on Thursday. Greene downplayed the likelihood of imminent rate cuts, citing concerns over persistent inflation.

Friday saw GBP plummet, as UK retail sales in October unexpectedly contracted. This sparked renewed recession anxieties, amid evidence of slowing consumer spending.

At the beginning of this week, GBP/EUR has managed to recover amid a hawkish testimony from BoE policymakers.

This afternoon, the UK’s Autumn Statement is in focus. If the government’s latest batch of fiscal policy measures proves enticing for investors, GBP could rally.

GBP/USD Exchange Rate: Pound Hits Two-Month High amid Hawkish BoE Remarks

The Pound US Dollar (GBP/USD) exchange rate strengthened at the end of last week amid a risk-on market mood.

Monday’s session, however, saw GBP rudderless due to a lack of impactful data releases.

On Tuesday, Sterling began to climb as BoE Governor Andrew Bailey and other key policymakers gave testimony. Overall, the BoE officials sounded surprisingly hawkish. GBP/USD struck a two-month high in response.

Today, anticipation began to build ahead of Jeremy Hunt’s Autumn Statement. As markets and economists digest the budget, we could see some volatility in GBP.

The UK’s preliminary PMI results are then the focus for Thursday. Could an ongoing contraction in British business activity see Sterling weaken?

USD/GBP Exchange Rate: US Dollar Slides as Fed Hike Bets Recede

The US Dollar Pound (USD/GBP) exchange rate weakened over the last seven days, as Federal Reserve tightening bets faded.

Wednesday saw the US Dollar struggle to attract support in the wake of Tuesday’s cooler inflation data.

In addition, US retail sales declined in October and cooling PPI further dented Fed bets, bringing additional headwinds.

Rising jobless claims and slowing industrial production exerted further pressure on Thursday. Then, an improvement in trading conditions during Friday’s session further weakened the safe-haven ‘Greenback’.

The risk-on market impulse continued through to Monday, leaving USD to extend its downside. Furthermore, investors continued to pull back their bets on further tightening from the Fed.

This Friday, the latest US flash PMIs are due to print. Economists forecast a slight slowdown in service sector activity during November, which could weaken the ‘Greenback’.

Elsewhere, risk appetite could drive USD movement. Will a cheery tone see the safe-haven currency struggle?

EUR/USD Exchange Rate: Euro Strengthens despite Falling ECB Tightening Bets

The Euro US Dollar (EUR/USD) exchange rate climbed over the last week, shrugging off initial losses.

Last Wednesday, industrial production figures for the Eurozone printed below expectations. September’s activity had contracted further, denting EUR.

Weakness in the US Dollar and a souring market mood brought strength to the common currency on Thursday, due to their negative correlation.

Then, confirmation of a sharp cooldown in the Eurozone’s inflation levels dented EUR. The data reinforced speculation that the European Central Bank’s (ECB) tightening cycle is over.

The Euro remained subdued at the beginning of this week, as German PPI continued to cool and dampen tightening bets. Conjecture that the ECB may begin to cut rates in 2024 weakened the Euro further on Tuesday, despite hawkish comments from ECB President Christine Lagarde.

Looking forward, the ECB meeting minutes and preliminary Eurozone PMIs are both due out on Thursday. Could contracting business activity and dovish comments from the ECB weigh heavily on EUR exchange rates?

Next week, German consumer confidence could influence the Euro. A forecast improvement in morale may help the common currency climb.

John Mulcahey

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