GBP/EUR exchange rate: Pound pressured by mixed BoE communication
The Pound Euro (GBP/EUR) exchange rate seesawed last week, amid muddled messaging from the Bank of England (BoE).
An absence of data releases initially pressured the Pound (GBP), leaving it exposed to market dynamics. However, it managed to remain strong against the Euro (EUR) amid risk-on trade.
Shop inflation levels softened in January, weighed on GBP exchange rates as they cooled to their lowest levels. This was furthered as the International Monetary Fund (IMF) downgraded its growth outlook for the UK in 2025.
The Bank of England kept interest rates unchanged during its meeting last Thursday. Forward guidance skewed hawkish, which strengthened the Pound. However, this was unwound by dovish comments from BoE Governor Andrew Bailey.
The lack of clarity served to induce volatility through to the end of the week, as investors grew uncertain of the BoE’s next steps.
Looking to the week ahead, BoE policymaker Catherine Mann is due to speak on Thursday. Mann voted for another rate hike at the last meeting, and may remain hawkish. If she is convincing, GBP could strengthen.
GBP/USD Exchange Rate fluctuates amid lack of wider economic data
Trade in the Pound US Dollar (GBP/USD) exchange rate was also mixed last week.
Due to the Pound’s increasingly risk-sensitive nature, Monday’s upbeat trade kept it aloft against the safe-haven US Dollar (USD).
Tuesday saw further volatility as dwindling shop inflation and the IMF’s downbeat forecasts impacted the Pound. Furthermore, the IMF cautioned UK Chancellor Jeremy Hunt against tax cuts in spring, bringing additional headwinds.
The schism between BoE policymakers induced further pressure on the Pound, as a three-way split emerged. With members calling from everything to a rate cut to a rate hike, the lack of clarity weighed on Sterling.
On Friday, a lack of data saw the Pound exposed to dwindling levels of risk appetite, weakening it against the US Dollar.
Elsewhere, data releases for Sterling are few and far between this week. Because of this, the Pound may struggle to attract support from investors.
USD/GBP Exchange Rate: US Dollar turbulent amid hawkish Fed decision
The US Dollar Pound (USD/GBP) exchange rate traded in a wide range last week, following hawkish action from the Federal Reserve.
Monday saw the US Dollar waver, as bullish trade carried across markets. However, Tuesday saw USD firm in spite of this, as US Treasury bond yields began to climb following forecast-beating JOLTs job openings data.
Focus then shifted towards the Federal Reserve in midweek trade. While interest rates were left unchanged as expected, the central bank emphatically pushed back against rate cuts, boosting the ‘Greenback’.
However, USD began to relinquish these gains after hitting multi-week highs amid profit-taking. This combined with weak US labour data to undermine the US Dollar.
On Friday, the US Dollar soared following the latest non farm payrolls data. In January, the US economy added a massive 353,000 jobs, eclipsing expectations and nullifying rate hike bets.
This Thursday, the latest US initial jobless claims are due to print, reflecting claims in the week ending February 3. Claims are forecast to have edged lower, which may boost the US Dollar.
EUR/USD Exchange Rate: Euro dogged by cooling inflation
The Euro US Dollar (EUR/USD) exchange rate weakened last week. The Euro plummeted on Monday amid dovish comments from European Central Bank (ECB) policymakers.
The advocation for rate cuts from Mario Centeno weighed heavily on the common currency, sparking bets on an April cut.
However, better-than-forecast Eurozone GDP data strengthened the Euro on Tuesday, amid signs that the bloc had avoided a recession.
Mixed German data then undercut EUR, as inflation cooled sharply. However, unemployment edged lower, cushioning the common currency.
Record low unemployment across the bloc allowed the Euro to remain afloat despite cooling inflation. Then, risk-off trade allowed EUR to end the week on firm footing.
Tomorrow, the latest German factory orders data is due to print. Economists are anticipating a stall in orders during December, which may weigh on the Euro.