Fresh signs of US economic resilience left the Pound to US Dollar exchange rate on a softer footing at the start of the week.
Last Week: Pound US Dollar Exchange Rate Falters as UK GDP Contraction Continues
A smaller-than-expected contraction in the UK gross domestic product was not enough to keep the GBP/USD exchange rate from shedding ground ahead of the weekend.
Confidence in the underlying health of the economy continued to weaken in response to the -2.9% monthly contraction in growth momentum, with investors still wary of a potential negative first quarter.
On the other hand, demand for the US Dollar strengthened in the face of an improved Michigan consumer sentiment index, which unexpected jumped from 76.8 to 83.
With the US economy showing greater signs of resilience in spite of the ongoing Covid-19 pandemic the appeal of the US Dollar naturally improved, allowing USD exchange rates to recover some of their lost ground.
Three Things to Watch out for This Week
1. US Retail Sales
However, worries over the outlook of the US economy could pick back up on Tuesday if February’s US retail sales data dips as forecast.
After January’s strong recovery in retail momentum any slowdown here may leave the US Dollar biased to the downside, with faltering consumer spending likely to limit economic activity.
2. Federal Reserve Interest Rate Decision
Greater volatility is likely for the GBP/USD exchange rate on the back of the Federal Reserve’s March policy meeting, though.
While no change in monetary policy appears likely at this stage the US Dollar could rally if policymakers express any particular sense of optimism over the economic outlook.
3. Bank of England Interest Rate Decision
The Bank of England also looks likely to leave interest rates on hold this month, with rates set to remain at their record low for the foreseeable future.
Even so, if BoE policymakers maintain a less dovish bias the mood towards the Pound could pick up once again, to the benefit of GBP exchange rates.
GBP/USD Outlook
Both the Fed and BoE policy announcements could provoke some sharp movement for the Pound to US Dollar exchange rate this week, even with no fresh policy action appearing likely.