A stronger-than-expected UK manufacturing PMI helped to keep the GBP/USD exchange rate on a positive footing in spite of a sharp contraction in the accompanying services PMI.
Last Week: Pause in Brexit Talks Fails to Drive Pound Lower
Although UK-EU trade talks had to be paused in response to a negotiator’s Covid-19 diagnosis this failed to weigh on the Pound for long.
While the two sides failed to reach an agreement before the EU leaders meeting their willingness to continue talks fuelled hopes that a no-deal scenario could still be avoided.
Support for the US Dollar, on the other hand, generally weakened in the face of renewed optimism over the ongoing development of Covid-19 vaccines.
With two viable vaccines on the horizon market risk aversion naturally diminished, putting the safe-haven US Dollar under pressure as investor confidence improved.
Three Things to Watch out for This Week
1. CBI Distributive Trades Index
Confidence in the underlying health of the UK economy could take a blow on Tuesday if November’s CBI distributive trades index sinks even deeper into negative territory as forecast.
As long as the UK retail sector shows increasing signs of caution over its outlook support for the Pound looks set to weaken in the near term.
2. US Durable Goods Orders
USD exchange rates could lose fresh traction this week with the release of October’s durable goods orders figure.
Evidence of any deterioration in domestic demand could limit the appeal of the US Dollar, suggesting that the economy started the fourth quarter on a weaker footing.
3. Federal Open Market Committee Meeting Minutes
Any increased signs of dovishness in the Federal Open Market Committee’s (FOMC) November meeting minutes may weigh heavily on the US Dollar, meanwhile.
If policymakers demonstrated a greater willingness to enact further monetary loosening measures in the coming months the GBP/USD exchange rate could find a fresh rallying point.
GBP/USD Outlook
Even if UK data proves negative in the near term the GBP/USD exchange rate could still push higher on the back of increasing Fed dovishness.