Pound Sterling

Pound Rallies on Shock BoE Rate Hike, US Dollar Falls Victim to Some Profit Taking

The Pound struck higher this week as the Bank of England shocked markets by hiking interest rates for the first time in three years. 

At the same time, the US Dollar weakened after the Federal Reserve’s hawkish policy outlook triggered some profit taking by USD investors. 

Pound Spikes as BoE Surprises with Rate Hike 

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

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

The Pound jumped this week, after the Bank of England (BoE) surprised markets by voting to raise interest rates from a record low this month.  

However Sterling was unable to sustain its best levels as worries over the rapid spread of the Omicron Covid variant throughout the UK, stoked fears of stricter restrictions. 

Turning to next week’s session, the Pound could face an uphill battle if UK Covid cases continued to rise at an alarming rate as this will stoke fears the government will need to consider a ‘Plan C’ in the new year. 

Euro Supported by ECB Policy Outlook 

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

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

The Euro initially softened this week, as the single currency’s negative correlation with the US Dollar saw it struggle as the latter strengthened. 

The European Central Bank’s (ECB) latest rate decision then helped to reverse this trend in the latter half of the week, with a lack of dovish signals from the bank sending the Euro higher. 

A sparse EUR data calendar will likely see the direction of the Euro determined by Covid developments next week. Expect to see the single currency weaken if surging cases force some countries to introduce stricter restrictions. 

US Dollar Slides Despite Hawkish Fed Policy Statement 

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

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

The US Dollar trended higher through the first half of this week, with skittish investors favouring the safe-haven currency amidst a prevailing risk-off mood.  

But the ‘Greenback’ pared a good portion of these gains in the latter half of the week after some USD investors unwound their positions following the Federal Reserve’s latest policy statement, in spite of the bank accelerating its tapering process and signalling three rate hikes will be targeted in 2022. 

The publication of the latest US durable goods orders may help to bolster the US Dollar next week, if November’s release shows that goods orders rebounded as forecast. 

Australian Dollar Rebounds on Impressive Employment Figures 

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

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

The Australian Dollar initially faltered this week as a souring market mood weakened the appeal of the risk-sensitive currency.  

However, the reopening of Australia’s borders, coupled with data showing a much larger-than-expected drop in domestic unemployment last month allowed the ‘Aussie’ to claw back some of these losses later in the week. 

The publication of the minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting will be the main priority for AUD investors next week, and could buoy the ‘Aussie’ if they hint at accelerating the RBA’s tapering process. 

Key Data  

Dec 20 GBP CBI Industrial Trends Orders (Dec) 

Dec 21 AUD RBA Minutes 

Dec 21 GBP CBI Distributive Trades (Dec) 

Dec 21 EUR Consumer Confidence (Dec) 

Dec 22 GBP GDP (Q3) 

Dec 22 USD GDP (Q3) 

Dec 22 USD Durable Goods Orders (Nov) 

Dec 22 USD PCE Price index (Nov)