GBP/EUR exchange rate: Pound rocked by unchanged inflation
The Pound Euro (GBP/EUR) exchange rate traded in a wide range last week, amid highly variable economic data.
In the first half of the week, the Pound soared to a new 18-month high against the Euro following the latest UK jobs data. Unemployment unexpectedly fell, showing the Bank of England (BoE) had additional room to keep interest rates unchanged.
However, UK inflation printed below expectations on Wednesday, quickly erasing Sterling’s gains. Markets had anticipated an increase in both headline and core inflation, but they held steady. This increased BoE rate cut bets, weighing on GBP.
While retail sales showed a full recovery in January, the rebound wasn’t strong enough to strengthen Sterling on Friday.
On Wednesday, the latest industrial trends orders data from the Confederation of British Industry (CBI) is due to print. Orders are expected to have improved, but remain deeply negative, which may do little for GBP exchange rates.
GBP/USD exchange rate volatile as UK enters recession
Trade in the Pound US Dollar (GBP/USD) exchange rate was similarly turbulent over the past week, amid confirmation that the UK had entered a recession.
However, the Pound began the session strongly, as wage growth printed above expectations. This prompted renewed bets that the BoE will need to keep monetary policy restrictive, due to continuing inflationary pressures.
Later in the week, the UK’s GDP data for the fourth quarter of 2023 printed below forecasts. On a quarterly basis the UK economy contracted by 0.3%, marking the second consecutive period of slowdown.
Confirmation that the UK had entered a technical recession weighed heavily on Sterling, coalescing with moderate inflation to scupper GBP.
Thursday brings the release of the latest preliminary PMIs for the UK. In February, the service sector is forecast to have grown modestly, which could lift the Pound.
USD/GBP exchange rate: US Dollar seesaws amid persistent inflation
The US Dollar Pound (USD/GBP) exchange rate traded in a wide range last week, amid mixed economic data.
Ahead of the latest US consumer price index data, the US Dollar endured muted trade during Monday’s session.
Then, the ‘Greenback’ skyrocketed as US CPI printed above expectations. In January, headline inflation eased less than expected, further diminishing the odds of an interest rate cut from the Federal Reserve in March.
However, elevated levels of risk appetite saw the safe-haven US Dollar trim some of these gains during midweek trade.
USD exchange rates continued to slide on Thursday, following an unexpected slump in US retail sales. In January, domestic sales declined by 0.8%, weighing heavily on the ‘Greenback’.
The US Dollar managed to end the week on a positive note following the latest US producer price index. January’s PPI data printed above forecasts, demonstrating that inflationary pressures remain in the US, further diminishing Fed cut bets.
Looking ahead, the latest FOMC meeting minutes are due to be published on Wednesday night. Could pushback against rate cut expectations boost the US Dollar?
EUR/USD exchange rate: Euro fluctuates amid mixed ECB commentary
The Euro US Dollar (EUR/USD) exchange rate fluctuated last week.
The Euro weakened on Monday following dovish comments from European Central Bank (ECB) policymaker Fabio Panneta. He argued for imminent interest rate cuts, denting EUR.
Germany’s economic sentiment index exceeded forecasts for February, printing at a one-year high. This served to underpin the common currency against its weaker peers on Tuesday.
Although the European Commission downgraded its forecast for economic growth in 2024 on Thursday, EUR managed to gain ground amid a falling US Dollar.
At the end of the week, hawkish comments from ECB executive board member Isabel Schnabel supported the Euro. However, due to the common currency’s negative correlation to the rising US Dollar, its gains were capped.
On Thursday, the latest ECB monetary policy meeting accounts are due to print. If the minutes skew hawkish, EUR could rally.