Pound strikes multi-month lows amid BoE rate cut bets
The pound trended lower across the board on Monday as concerns of US economic weakness bolstered Bank of England (BoE) interest rate cut bets.
Investors priced in two additional interest rate cuts for the remainder of 2024, which weighed heavily on Sterling.
A wave of riots across the UK further deterred investor interest in GBP on Tuesday, with the civil unrest undermining the UK’s image of stability and souring Sterling sentiment. In addition, risk-off flows dented the increasingly risk-sensitive pound.
Midweek, a recovering market sentiment lent GBP modest support against its safer rivals.
Thursday saw GBP touch multi-month lows before investors sought to pick up a bargain and buy the oversold pound.
As the week neared its end, an ongoing lull in UK releases saw further correctional buying lift GBP. However, Sterling remained down on the week as lingering BoE rate cut bets stymied the pound’s upside potential.
This week, the UK’s consumer price index and second-quarter GDP figures are due out. Could an expanding economy coupled with stubborn domestic inflation see a slight pullback in BoE rate cut bets, thereby lifting the pound?
US dollar volatile amid global market panic
The US dollar faced significant volatility on Monday, touching a fresh seven-month low as panic gripped global markets.
A bleak batch of US jobs data from the week prior weighed on the ‘greenback’, fuelling fears of a US recession. Speculation that the Federal Reserve could enact an emergency rate cut to combat economic weakness applied further pressure to USD exchange rates.
However, a better-than-forecast ISM services PMI in the afternoon saw the US dollar clawing back some of its losses.
The ‘greenback’ faced further headwinds on Tuesday as ongoing market turbulence and firming Federal Reserve interest rate cut bets pressured the ‘greenback’.
USD fell on Wednesday as markets began to stabilise following the largest global selloff in nearly two years. An increasing appetite for risk left the safe-haven ‘greenback’ on the back foot amid a lack of notable US data.
However, a slight pullback in Fed rate cut bets later boosted USD against some of its rivals.
On Thursday, USD attracted some investor interest following a lower-than-forecast initial jobless claims figure. The release served to soften concerns of a deteriorating US labour market lending the ‘greenback’ modest support. However, an ongoing spell of upbeat trade limited USD’s upside potential, leaving the safer currency to fall against its riskier rivals.
The week’s end saw USD stabilise as markets settled in the wake of turbulent trading conditions.
Coming up, the latest US inflation release will likely be the focus for USD investors this week. Could easing US price pressures solidify the case for a September rate cut by the Fed?
Euro buoyed by USD weakness
The euro rallied at the start of last week, as the safe-haven single currency enjoyed the risk-off market mood.
EUR further benefitted from its negative correlation with a faltering US dollar. Meanwhile, a stronger-than-expected producer price index lent the euro additional support, with wholesale inflation in the Eurozone rising 0.5% month on month in June.
On Tuesday, EUR moved without a clear direction following some mixed data from the Eurozone. While Germany’s factory orders staged an impressive recovery in June, a sharper-than-expected contraction in Eurozone retail sales capped the common currency’s upside potential.
A larger-than-forecast rise in German industrial production in June failed to boost the euro against its rivals on Wednesday. As markets began to settle after a turbulent start to the week, a recovering appetite for risk undermined the safer common currency.
EUR struggled to garner investor interest on Thursday, due to its negative correlation with a recovering US dollar. Furthermore, an ongoing improvement in risk appetite left the safe-haven currency on the back foot.
On Friday, the common currency struggled to find a clear direction amid a tepid market mood. While Germany’s finalised consumer price index confirmed a slight uptick in domestic inflation, the data fell largely by the wayside, as the index printed in line with the previous estimate.
Looking ahead, Germany’s ZEW economic sentiment index is due for release. Could waning morale in the Eurozone’s largest economy undermine EUR exchange rates?