US Dollar

Pound Undermined by Political Uncertainty, US Dollar Stumbles despite Soaring US Inflation

The Pound was shaken this week as Boris Johnson was mired in a scandal over a lockdown party at No10, which appeared to threaten his future as Prime Minister. 

At the same time, the US Dollar was met by broad selling pressure, despite US inflation rocketing to a 40-year high. 

Pound Sours as Boris Johnson’s Premiership in Question 

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

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

The Pound initially rallied through the first half of this week, with Sterling sentiment being underpinned by expectations the Bank of England (BoE) will hike interest rates when policymakers next meet in February.  

However, GBP exchange rates subsequently faced some headwinds in the latter half of the week amidst doubts over Boris Johnson’s future as Prime Minister, after he admitted attending a social gathering at No 10 during the UK’s first lockdown. 

There will be a number of high-profile UK data releases to influence GBP exchange rates next week, the most impactful of which may be the latest inflation figures. Another rise in inflation could help to bolster expectations for additional BoE rate hikes this year. 

Euro Buoyed by USD Weakness 

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

EUR/USD – Up one cent on the week’s opening levels 

The Euro initially faltered this week, with the appeal of the single currency being weakened by concerns over the European Central Bank’s (ECB) policy divergence with the other major central banks. 

However, the single currency was then able to rebound through the latter half of the session, bolstered by its negative correlation with the US Dollar. 

Germany’s latest ZEW economic sentiment survey will be the spotlight for EUR investors next week. Could an improvement in sentiment this month reflect positively on the Euro? 

US Dollar Slumps despite Surging Inflation 

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

USD/EUR – Down one cent on the week’s opening levels  

The US Dollar moved lower this week, despite a hawkish testimony from Federal Reserve Chair Jerome Powell and data showing US inflation rocketed up to a 40-year high last month.  

This pullback in USD comes amidst suggestions a rate hike from the Fed in March is already fully priced in, leaving the US dollar vulnerable to risk-on trading dynamics. 

Looking ahead, the US Dollar may continue to trend lower through next week’s session so long as safe-haven demand remains suppressed by bullish trade sentiment. 

Australian Dollar Firms in Bullish Trade 

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

AUD/USD – Up one cent on the week’s opening levels 

The Australian Dollar trended higher through this week’s session, with the currency drawing support thanks to a prevailing risk-on mood.  

However, the ‘Aussie’ faced some hurdles in the first half of the week, after Australia reported it trade surplus narrowed more than expected in November as it fell below AU$10bn for the first time in seven months. 

In the spotlight for AUD investors next week will no doubt be the publication of Australia’s latest jobs report. Another fall in domestic unemployment could see the Australian Dollar rally. 

Key Data  

Jan 18 AUD Consumer Confidence (Jan) 

Jan 18 GBP Unemployment Rate (Nov) 

Jan 18 EUR German ZEW Economic Sentiment (Jan)  

Jan 19 GBP Inflation Rate (Dec) 

Jan 20 AUD Unemployment Rate (Dec)  

Jan 20 EUR Inflation Rate (Dec)  

Jan 20 USD Initial Jobless Claims (15/Jan) 

Jan 20 USD Philadelphia Manufacturing Index (Jan) 

Jan 20 USD Existing Home Sales (Dec) 

Jan 21 GBP Retail Sales (Dec) 

Jan 21 EUR Consumer Confidence (Jan)