The Pound to US Dollar exchange rate rallied sharply at the end of last week in the wake of Federal Reserve Chair Jerome Powell’s pledge to keep monetary policy loose and allow inflation to rise.
Last Week: Fed’s Pledge to Maintain Softer Inflation Approach Drags on US Dollar to Pound Rate
Markets were buoyed by Powell’s softer approach to inflation in his speech at the Jackson Hole symposium, putting the US Dollar under pressure from the prospect of interest rates remaining lower for longer.
With the Fed appearing set to offer further stimulation to the US economy, investors found renewed cause for confidence leaving USD exchange rates on the back foot as market sentiment improved.
Meanwhile, the Bank of England’s (BoE) similar determination to support the UK economy helped to keep a floor under the Pound.
However, despite lingering Brexit concerns, the threat of more UK redundancies and rising coronavirus cases, the GBP/USD exchange rate rallied to its highest level since the start of 2020.
Three Things to Watch Out for This Week
- US Non Farm Payrolls
US Dollar losses could be lessened at the end of the week if August’s payroll figures show employment numbers continued to rise. This could also offset concerns over the continuing fiscal stimulus deadlock in Washington and the Fed’s inflation targets.
- UK Services PMI
The mood towards the Pound could improve further, however, on the back of August’s finalised UK services PMI.
Confirmation of another strong monthly expansion in service sector activity may see the Pound to US Dollar exchange rate climbing above two-year highs.
- US Trade Balance
With the US trade deficit expected to show a further widening in July, the US Dollar could struggle to find favour with investors on Thursday.
A continued widening of the US deficit would lend additional weight to the softer approach of the Fed, encouraging markets to maintain a more bullish attitude ahead of the weekend.
Pound to US Dollar Exchange Rate Outlook
The GBP/USD exchange rate could continue to make gains as confidence in the health of the UK economy improves while the US Dollar is hampered by the Fed’s softer outlook.