Pound bolstered by upbeat economic data, US Dollar dented by Fed rate cut bets

GBP/EUR exchange rate strengthens as UK service sector expands

The Pound Euro (GBP/EUR) exchange rate rose through the second half of last week’s session, following upbeat economic data.

Sterling was initially supported by a report which suggested that UK supermarkets saw the busiest festive season in four years. Hopes that consumer spending is remaining resilient served to cheer GBP investors.

This was followed by a better-than-expected final services PMI. In December, the vital sector expanded by more than initially thought, strengthening Sterling further.

However, a lack of subsequent data left Sterling to trade without a clear direction through the first half of this week.

On Friday, the latest UK GDP data is due to print. Economists forecast that the economy grew by 0.2% in November, which could ease recession fears and lift Sterling.

GBP/USD Exchange Rate: Pound wavers amid cautious market mood

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

Monday saw Sterling grind upward despite a lack of impetus, and a bearish market impulse. Bank of England (BoE) interest rate cut bets were pushed back following signs of persistence inflationary pressures.

The same lack of data continued through to Tuesday, but had more of a muting effect on Sterling’s trade. The increasingly risk-sensitive Pound was left vulnerable to a downbeat market mood.

Thus far today, GBP exchange rates have largely traded sideways ahead of a testimony from BoE Governor Andrew Bailey. Sterling could find support if Bailey successfully pushes back against rate cut bets.

Next Tuesday, the latest UK labour data is due to print. Average earnings are expected to have risen in November, which may spark hawkish BoE bets and strengthen Sterling.

USD/GBP Exchange Rate: US Dollar undermined by Fed rate cut bets

The US Dollar Pound (USD/GBP) exchange rate weakened over the past seven days, amid growing Federal Reserve rate cut bets.

Wednesday saw the US Dollar slide against its peers following the publication of the minutes from the Fed’s latest policy meeting. Policymakers expressed concern that ‘overly restrictive’ monetary policy could be detrimental to the economy, which was interpreted as a dovish sentiment by markets.

While December’s ADP employment data printed above forecasts, bets on an imminent rate cut from the Fed sapped sentiment towards USD on Thursday.

Non farm payrolls exceeded forecasts in December, by downward revisions to November and October’s data muted USD’s gains. Furthermore, a weak ISM services PMI added further pressure on Friday.

The US Dollar has mounted a recovery through the first half of this week, with a cautious mood helping to boost demand for the safe-haven currency.

Tomorrow, the latest US consumer price index data is scheduled for release. While headline CPI is expected to accelerate slightly, core inflation is forecast to have cooled, which could infuse some volatility into USD exchange rates.

EUR/USD Exchange Rate: Euro fluctuates amid mixed economic data

The Euro US Dollar (EUR/USD) exchange rate fluctuated over the past week. The Euro initially floundered, following a mixed slate of German jobs data. In December, unemployment rose to 5.9% but a smaller-than-expected amount of citizens became unemployed.

German inflation leapt higher in December, from 3.2% to 3.7%. This sparked bets on hawkish action from the European Central Bank (ECB), lifting the Euro.

However, Eurozone inflation was a more mixed offering. While headline inflation rose, it came in below forecasts. Opinion was divided over whether or not this was a one-off, or signs of stubborn inflation.

The Euro gained ground on Monday following a surprisingly strong rebound in German exports. Furthermore, improving economic sentiment in the bloc yielded additional gains.

Tuesday saw the common currency seesaw, as an initial drop in German industrial production dented EUR. This was then offset by the Eurozone’s latest jobs data as this showed that unemployment in the bloc fell to a record low in November.

This morning, hawkish comments from ECB Vice President Luis de Guindos are helping to boost EUR sentiment.

Next Monday, the latest German GDP data is set for release. This could see the Euro tumble as it is expected to show the German economy contracted by 0.3% in 2023.

John Mulcahey

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