US Dollar soars as risk appetite sours, Pound rocked by mixed data

GBP/EUR exchange rate: Pound fluctuates on uneven data

The Pound Euro exchange rate traded erratically over the past seven days mostly as a result of mixed UK data.

The second half of last week saw Sterling sentiment rocked by the UK’s latest GDP figures. While the economy was shown to have expanded at a faster-than-expected pace in November, analysts warned this may not be enough for the UK to avoid a recession.

GBP exchange rates then faltered in the first half of this week in response to the UK’s latest jobs data. Unemployment held steady in November, but a sharp cooling of wage growth took its toll on the Pound as it stoked Bank of England (BoE) interest rate cut expectations.

However, these gains were almost immediately reversed on Wednesday, after the UK’s consumer price index reported a surprise uptick in inflation last month.

Looking ahead, Sterling may come under pressure again on Friday as the UK’s latest retail sales figures are forecast to report sales growth contracted in December.

GBP/USD exchange rate: Sterling pressured by souring mood

The Pound US Dollar exchange rate depreciated by around a cent over the past week as the increasingly risk-sensitive Sterling ran afoul of a souring market mood.

Market risk appetite has flatlined over the past few days amid a stark rise in tensions in the Middle East.

Investors are particularly worried about recent events in the Red Sea and the knock-on impact this could have on trade and the global economy.

The Pound may have the opportunity to bounce back next week, if the UK’s latest PMI releases report that activity in the vital services sector continued to expand this month.

USD/GBP exchange rate: US Dollar soars amid risk-off flows

The US Dollar Pound exchange rate struck a new one-month high earlier this week, as demand for the safe-haven ‘Greenback’ has been turbocharged amid a bearish market mood.

In addition to geopolitical tensions, risk appetite has also been negatively impacted by a repricing of Federal Reserve interest rate cut expectations.

Analysts have begun expressing doubt that the Fed will begin its cutting cycle in March. A stronger-than-expected US CPI print last week, coupled with warnings that tensions in Middle East will increase inflationary risks, could encourage the US central bank to stay put for now.

Assuming the mood remains downbeat, it’s likely the US Dollar will maintain a positive trajectory over the coming week.

But in the meantime, the immediate focus for USD investors will now turn to the latest US retail sales figures. An expected uptick in sales growth last month may reflect positively on USD.

EUR/USD exchange rate: Euro struggles amid contraction in German GDP

The Euro US Dollar exchange rate traded in a narrow range at the end of last week’s session. The single currency was supported by hawkish comments from European Central Bank (ECB) officials, as they continued to push back against rate cut speculation.

However, the Euro quickly found itself on the defensive this week, after Germany’s latest GDP figures reported that the Eurozone’s largest economy shrank in 2023.

The subsequent release of Germany’s latest economic sentiment index helped to cushion these losses after reporting a surprise uptick in morale. However, this wasn’t enough to prevent the EUR/USD exchange rate from sliding to a one-month low.

Looking ahead, a series of speeches by ECB policymakers, including President Christine Lagarde, will be in the spotlight for EUR investors in the second half of the week. Will a hawkish consensus help the Euro to claw back some of its losses?

Matthew Andrews

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