Pound Nosedives on Dire BoE Forecasts, US Dollar Rocked by Fed’s 50bps Rate Hike

The Pound suffered its worst day of trade since the start of Covid pandemic this week as bleak economic forecasts from the Bank of England spooked GBP investors. 

At the same time, the US Dollar seesawed this week in response to the Federal Reserve’s largest interest rate hike in over two decades. 

Pound Collapses on Alarming BoE Forecasts 

GBP/EUR – Down three cents on the week’s opening levels 

GBP/USD – Down two cents on the week’s opening levels 

The Pound nosedived this week, with the currency falling to new multi-month lows in the wake of the Bank of England’s (BoE) latest interest rate decision. 

While the BoE hiked rates as expected, this was overshadowed by the bank’s accompanying economic forecasts, which painted a bleak picture for UK growth and included warnings inflation could surge as high as 10%. 

In the spotlight for GBP investors next week will be the UK’s latest GDP figures. Will a lacklustre first quarter growth reading, push the Pound lower? 

Euro Reverses Early Data Driven Losses 

EUR/GBP – Up two pence on the week’s opening levels 

EUR/USD – Unchanged on the week’s opening levels 

The Euro stumbled at the start of this week, with the single currency being undermined by weaker-than-expected Eurozone economic sentiment and employment data.  

A brief pullback in USD exchange rates then set the stage for the Euro’s rebound in the second half of the week, in spite of concerns over the EU’s proposed Russian oil import ban. 

The publication of Germany’s ZEW economic sentiment index may act as a key catalyst for the Euro next week. Will a further deterioration of sentiment undermine the Euro? 

US Dollar Flip-Flops on Fed’s Aggressive Rate Hike 

USD/GBP – Up two pence on the week’s opening levels  

USD/EUR – Unchanged on the week’s opening levels  

The US Dollar traded in a wide range this week, initially stumbling as investors were reluctant to make any bullish bets ahead of the Federal Reserve’s interest rate hike on Wednesday.  

The USD selloff then picked up the pace after Fed Chair Jerome Powell quashed suggestions the US central bank could pursue a 75 bps hike in June. However, the ‘Greenback’ then clawed back much of these losses in the latter half of the week amid a slump in equity markets and upbeat US payroll figures. 

The publication of the US consumer price index will be centre stage next week. Will another rise in US inflation weaken the US Dollar in light of the Fed’s reluctant to more aggressively raise interest rates? 

Australian Dollar Spikes on Hawkish RBA Rate Hike 

AUD/GBP – Up one pence on the week’s opening levels 

AUD/USD – Unchanged on the week’s opening levels 

The Australian Dollar got off to a strong start this week, with AUD investors welcoming the Reserve Bank of Australia’s (RBA) larger-than-expected rate hike and hawkish forward guidance.  

However, the ‘Aussie’ was then forced to relinquish the majority of its gains as a souring market mood undermined the appeal of the risk-sensitive currency. 

The publication of Australia’s latest business and consumer confidence indexes could exert some pressure on the ‘Aussie’ next week if sentiment continued to deteriorate in the face of increased economic uncertainty. 

Key Data  

May 9 GBP BoE Saunders Speech  

May 10 AUD Business Confidence (Apr) 

May 10 EUR German ZEW Economic Sentiment (May)  

May 11 AUD Consumer Confidence (Apr) 

May 11 EUR German Inflation Rate (Apr)  

May 11 USD Inflation Rate (Apr)  

May 12 GBP GDP (Q1) 

May 12 GBP Business Investment (Q1)  

May 12 USD PPI (Apr) 

May 13 EUR Industrial Production (Mar)  

May 13 USD Consumer Sentiment (May)