Pound capped by recession fears, US Dollar rocked by Fed rate cut bets

GBP/EUR exchange rate fluctuates amid UK recession fears

The Pound Euro (GBP/EUR) exchange rate saw choppy trade at the end of last week’s session, amid a rise in UK recession concerns.

Data releases were few and far between as 2023 came to a close, leaving Sterling without a clear catalyst for movement.

While an upbeat market mood offered some support to the Pound on Thursday, the currency struggled to consolidate these gains.

Continued anxiety over a UK recession restricted the Pound’s movements on Friday. However, optimistic estimates from accountancy group PwC provided some support, with the firm expecting the economy to ‘turn a corner’.

With UK data still thin on the ground this week, the Pound may continue to struggle to find its footing against its peers.

GBP/USD Exchange Rate: Pound Slides as UK Manufacturing Weakens

The Pound US Dollar (GBP/USD) exchange rate dropped at the end of last week’s session, amid sour trading conditions.

On Monday, market closures saw Sterling’s movement limited amid thin trading conditions.

Tuesday, however, saw GBP/USD slide following a downward revision to the UK’s manufacturing PMI. In December, sector activity contracted more than expected, reinforcing recession jitters amongst GBP investors.

Over the course of Tuesday’s session, the market mood soured which piled additional pressure on the increasingly risk-sensitive Pound.

Owing to a continued short supply of data, next week Sterling is likely to trade on market dynamics. Could a shift towards bullish trade aid GBP?

USD/GBP Exchange Rate: US Dollar Seesaws amid Fed Rate Cut Speculation

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

Wednesday saw the US Dollar slide against its peers amid a late-year improvement in market risk appetite. As a safe-haven currency, USD was unable to counteract growing bets on imminent interest rate cuts from the Federal Reserve.

Initial jobless claims rose more than expected on Thursday, which initially weakened the ‘Greenback’.

Bets on Fed rate cuts then served to mute the US Dollar at the very end of last year’s as investors continued to price in the cutting cycle beginning in March.

So far this week USD exchange rates have surged amid cautious trading conditions. Furthermore, US Treasury yields ticked higher ahead of impactful data this week, providing additional support to USD.

Tonight, the latest FOMC meeting minutes are published, with the US Dollar potentially slumping if they signal most Fed policymakers are open to imminent rate cuts.

Later in the week we will see the publication of the latest US payroll figures. Could signs of a slowing US labour market pile more pressure on USD?

EUR/USD Exchange Rate: Euro Sinks as USD Rises

The Euro US Dollar (EUR/USD) exchange rate fluctuated over the past week. The Euro initially gained ground against its peers due to a weakening US Dollar. The upbeat market mood undermined USD, leading to EUR taking advantage of the pairing’s negative correlation.

The common currency saw its gains recede over Thursday and Friday, as a lack of macroeconomic data sapped investor sentiment.

Tuesday saw the Euro unable to capitalise on a forecast-beating manufacturing index. In December, the bloc’s sector PMI printed at 44.4, revised upwards from the flash estimate of 44.2.

Analysis of the data showed that the sector remained in a sustained decline, despite the upward revision. Additionally, USD began to strengthen, weighing on EUR exchange rates.

This morning, better-than-expected German jobs data provided cushioning for the common currency. Unemployment increased less than expected in December, and the overall rate held at 5.9%.

This Friday brings the release of the latest Eurozone consumer price index. In December, headline inflation is forecast to have increased from 2.4% to 3%. If this estimate is accurate, it could lift the Euro as it would encourage the European Central Bank (ECB) to hold off from cutting interest rates in the near future.

John Mulcahey

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