A drop in safe-haven demand at the start of this week boosted the Pound to US Dollar exchange rate, even in the face of increasing fears over the health of the UK labour market.
While the finalised UK services PMI for September saw an improvement on its initial forecast, this offered limited support to the Pound as the sector showed its seventh consecutive month of job losses.
Last Week: GBP/USD Fluctuates on Brexit Optimism and US Uncertainty
The Pound fluctuated through last week, making solid gains initially as several Bank of England (BoE) policymakers dismissed speculation the bank would use negative interest rates any time soon.
Added to this, the Pound ultimately found support at the end of the week on optimism over a UK-EU trade deal as talks look set to extend for another month, despite the EU formally launching legal action against the UK over breaching the Withdrawal Agreement.
Meanwhile, the US Dollar traded in a lower range at the start of the week in risk-on trade. However, market sentiment soured before the weekend over the political uncertainty caused by Donald Trump’s admission to hospital with Covid-19.
The underwhelming nature of September’s US non-farm payrolls report put pressure on the US Dollar as the labour market continued to show signs of faltering in the face of Covid-19 disruption.
Three Things to Watch Out for This Week
- US Political Uncertainty
The effect of ongoing uncertainty in the US will drive market sentiment and the GBP/USD exchange rate this week. While Donald Trump looks set to be discharged from hospital, the upcoming election and ongoing hopes of agreeing a coronavirus relief deal will likely cause further volatility.
- Federal Open Market Committee Meeting Minutes
Support for the US Dollar could also falter in response to the release of the Federal Reserve’s latest set of meeting minutes.
As there had been signs of dissension at the previous meeting, any fresh signs of disagreement over the course of monetary policy may leave USD exchange rates on the back foot.
- UK Gross Domestic Product
With forecasts pointing towards another positive monthly growth reading for the UK, the mood towards the Pound may improve further on Friday.
While growth momentum looks set to ease somewhat on the month evidence that the economy continued to expand in August may well lift the GBP/USD exchange rate.
Evidence of increasing dovishness within the Federal Reserve may see the GBP/USD exchange rate strengthen as worries over the outlook of the US economy grow.
At the same time, shifting market sentiment due to the US political situation and Brexit headlines will cause movement in the Pound to US Dollar exchange rate.