Pound Supported by Hawkish BoE, US Dollar Seesaws amid Variable Data

GBP/EUR Exchange Rate: Pound Supported by Hawkish BoE Bets

The Pound Euro (GBP/EUR) exchange rate strengthened through the second half of last week, amid a growing divide between central bank expectations.

Following hawkish comments from Bank of England (BoE) policymakers, GBP investors began to bet on further tightening. With the European Central Bank (ECB) appearing more dovish, this tilted GBP/EUR in the Pound’s favour.

However, Sterling appeared to enter overbought territory, leading to a sell-off that served to weaken GBP amid a lack of data.

Friday saw the Pound muted, despite an upward revision to the final UK manufacturing PMI. Although it beat expectations, the confirmation of a ninth consecutive contraction in factory sector growth sapped Sterling sentiment.

At the beginning of this week, GBP/EUR has remained largely rangebound amid a light data calendar.

Today, the focus shifts towards BoE Governor Andrew Bailey, who is due to deliver a speech later this morning. Hawkish remarks could lift the Pound.

GBP/USD Exchange Rate: Pound Languishes amid Lack of Data

The Pound US Dollar (GBP/USD) exchange rate spiked at the end of last week’s session, amid a mixed market mood.

On Monday, however, the Pound began to weaken as risk appetite waned. Due to sparse data releases, GBP was left exposed to the souring mood, falling against the safe-haven US Dollar.

This continued through to Tuesday, despite a larger-than-expected upward revision in the UK’s service PMI for November.

Next week, the core catalyst of movement is likely to be the latest UK labour data. Unemployment is forecast to have increased in October, which could coalesce with cooling wage growth to weaken Sterling.

USD/GBP Exchange Rate: US Dollar Volatile amid Mixed Economic Data

The US Dollar Pound (USD/GBP) exchange rate traded in a wide range over the past seven days, amid variable US data.

Wednesday saw the US Dollar strengthen against its peers following a stronger-than-forecast GDP print. In the third quarter, the US economy expanded by 5.2%, cheering USD investors.

Then, a souring market mood countered a slowdown in the core PCE price index. The Federal Reserve’s preferred inflation gauge decelerated in line with forecasts, prompting rate cut speculation.

The fluctuating market mood continued to bog down the ‘Greenback’ through to the end of last week’s session.

Amid a gloomy start to this week’s session, the US Dollar gained ground on Monday. While US Factory orders missed expectations, this further served to dampen the mood.

Then, a forecast-beating services PMI for November sent USD climbing on Tuesday, though a shock drop in job openings in October limited its gains.

On Friday, the latest non farm payrolls data is due to print. Could further signs that the US labour market is slowing trigger a sharp slump in USD?

EUR/USD Exchange Rate: Euro Slides as Inflation Cools Rapidly

The Euro US Dollar (EUR/USD) exchange rate sank over the last week as inflation across the Eurozone cooled beyond expectations.

Last Wednesday, German inflation decelerated beyond forecasts, which weighed heavily on the Euro. The release prompted speculation of imminent rate cuts from the ECB.

The common currency fell further on Thursday, as Eurozone inflation dropped significantly.

Interest rate cut bets continued to dent the Euro through to the end of last week, as investors began to eye cuts in early 2024.

While Germany’s trade surplus expanded, a shock contraction in exports undermined EUR exchange rates on Monday.

Then, dovish comments from ECB policymaker Isabel Schnabel further weakened the Euro. While one of the notable hawks in the bank, Schnabel stated further tightening was ‘unlikely’, which stoked rate cut bets.

Next Tuesday, the German ZEW economic sentiment index for December could strengthen the Euro, if business optimism improves as forecast.

John Mulcahey

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