Weakening US Business Sentiment Boosts Pound US Dollar Exchange Rate

A surprise decline in January’s NFIB business optimism index saw the Pound to US Dollar exchange rate pushing higher once again.

Last Week: Downgraded Non-Farm Payrolls Weighed Heavily on US Dollar

The appeal of the US Dollar weakened significantly on Friday in response to a disappointing non-farm payrolls report.

Although the headline figure showed a modest improvement on the month investors were concerned by a sharp downward revision to December’s figure, showing a deeper decline of -227,000.

This news weighed heavily on the US Dollar, allowing the GBP/USD exchange rate to climb sharply higher heading into the weekend.

The Pound also continued to benefit from a sense of bullishness in the wake of the Bank of England’s (BoE) decision to talk down the prospect of negative interest rates.

Three Things to Watch out for This Week

  1. US Inflation Rate

Support for the US Dollar could pick back up on Wednesday, though, if January’s inflation data shows an improvement on the year as anticipated.

Evidence that inflationary pressure continued to strengthen at the start of the year may give the Federal Reserve less cause for concern, offering USD exchange rates a rallying point.

2. UK Gross Domestic Product

On the other hand, the Pound could fall sharply out of favour ahead of the weekend thanks to the release of the fourth quarter UK gross domestic product report.

Unless the quarterly growth rate demonstrates greater resilience in the face of renewed pandemic pressures the Pound to US Dollar exchange rate looks set to come under pressure.

3. US Michigan Consumer Sentiment Index

With forecasts pointing towards a moderate uptick in the latest Michigan consumer sentiment index the US Dollar may find further cause for confidence.

Signs of consumer confidence holding up even in response to the latest resurgence in global anxiety over Covid-19 could give the US Dollar a solid boost against its rivals.

GBP/USD Outlook

The Pound to US Dollar exchange rate may struggle to hold onto its uptrend in the days ahead if the US economy shows fresh signs of resilience.

Louisa Heath

Contact Louisa Heath