The pound tumbled to new multi-month lows this week, after the Bank of England (BoE) surprised markets by leaving interest rates on hold.
While the Federal Reserve also hit pause this week, its hawkish forward guidance allowed the US Dollar to strengthen.
Pound Nosedives as BoE Leaves Rates Untouched
GBP/EUR – Down one cent on the week’s opening levels
GBP/USD – Down one cent on the week’s opening levels
The Pound was met by heavy selling pressure this week. The selloff was initially kicked off by a weaker-than-expected UK inflation release.
These losses then accelerated after the BoE opted to leave interest rates on hold. While lacklustre UK PMIs left Sterling to limp over the finishing line.
Notable UK data is thin on the ground next week, as a result the increasingly risk-sensitive Pound could be vulnerable to further losses if market sentiment sours.
Euro Pressured by USD Strength
EUR/GBP – Up one pence on the week’s opening levels
EUR/USD – Unchanged on the week’s opening levels
The Euro’s negative correlation with the US Dollar left the single currency to falter this week as the latter rallied.
Attempts by the Euro to recover were then derailed later in the week in response to some mixed Eurozone PMIs.
Next week will see the publication of the Eurozone’s latest CPI figures. Will a sharp fall in inflation erase any lingering hopes for another rate hike from the European Central Bank (ECB)?
US Dollar Bolstered by Fed’s ‘Hawkish’ Pause
USD/GBP – Up one pence on the week’s opening levels
USD/EUR – Unchanged on the week’s opening levels
The US Dollar traded sideways through the first half of this week’s session as investors braced for the Fed’s latest interest rate decision.
USD exchange rates then rallied as the Fed keep interest rates on hold as expected but signalled it would pursue at least one more rate hike in 2023 and that it would cut rates at a slower pace than previously expected in 2024.
The focus for USD investors next week will be the latest core PCE price index. As the Fed’s preferred indicator for inflation another resilient reading is likely to boost rate hike bets and the US Dollar.
Australian Dollar Rocked by Fluctuating Market Mood
AUD/GBP – Up one pence on the week’s opening levels
AUD/USD – Unchanged on the week’s opening levels
The Australian Dollar was driven primarily by market sentiment this week. This allowed the ‘Aussie’ to trend higher through the first half of the session, amid a cautiously optimistic market mood.
However, the prospect of higher borrowing costs in the US soured risk appetite in the middle of the week, which led the Australian Dollar to shed its initial gains, before positive PMI figures helped to revive AUD sentiment at the very end of the session.
Looking ahead, Australia’s latest retail sales figures will be in the spotlight for AUD investors next week. Will a slowdown in sales growth weaken the ‘Aussie’?
Sep 25 EUR German IFO Business Climate (Sep)
Sep 25 GBP CBI Distributive Trades (Sep)
Sep 27 AUD Inflation Rate (Aug)
Sep 27 USD Durable Goods Orders (Aug)
Sep 28 AUD Retail Sales (Aug)
Sep 28 EUR Economic Sentiment (Sep)
Sep 28 USD GDP (Q2)
Sep 29 GBP GDP (Q2)
Sep 29 EUR Inflation Rate (Sep)
Sep 29 USD Core PCE Price Index (Aug)