Pound US Dollar Exchange Rate Holds Near 34-Month High

The Pound to US Dollar exchange rate extended its bullish run to hit a 34-month high before beginning to give up some of its gains as anticipation for the government’s lockdown exit plan mounted.

Last Week: Latest Signs of US Labour Market Weakness Drag on US Dollar

As US initial jobless claims saw a sharper increase on the week than forecast this left the US Dollar on the back foot, with worries over the health of the labour market rising once again.

Although UK retail sales delivered a major contraction in January, plunging -8.2% on the month, this was not enough to stop the GBP/USD exchange rate pushing higher.

Investors instead took encouragement from the improved UK services PMI, which picked up from 39.5 to 49.7 on the month.

While this still signalled a month of contraction for the service sector the Pound benefitted from the steadying state of the decline, fuelling hopes of a return to positive territory in the near future.

Three Things to Watch out for This Week

1. UK unemployment rate

Confidence in the underlying health of the UK economy could weaken once again if December’s unemployment rate rises as forecast.

Fresh evidence of weakness within the labour market would give investors reason to sell out of the Pound, especially with the impact of the latest national lockdown yet to be felt.

2. US durable goods orders

With forecasts pointing towards a sharp monthly increase in durable goods orders the US dollar could find a rallying point on Thursday.

A 1.1% monthly increase in demand could encourage bets of greater economic strength to come, helping to limit the downside potential of USD exchange rates.

3. US advance goods trade balance

Worries over the health of the US economy may pick up ahead of the weekend if January’s advance goods trade balance shows a widened deficit, however.

Deteriorating trade conditions could see the US dollar falling out of favour once again, particularly if the wider sense of market risk appetite picks up once again.

GBP/USD Outlook

The Pound to US Dollar exchange rate may struggle to hold onto its bullish trend this week with the UK unemployment rate expected to rise.

Louisa Heath

Contact Louisa Heath


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