Pound US Dollar Weekly Forecast: GBP/USD Exchange Rate Under Pressure Thanks to Rising UK Government Debt

In the wake of the sharp uptick in new UK government debt during February the Pound to US Dollar exchange rate remained on the back foot.

Last Week: Growing UK Government Debt Weighs on Pound US Dollar Exchange Rate

While forecasts had pointed towards a sharp widening of the public sector net borrowing deficit this was not enough to keep the Pound from weakening ahead of the weekend.

Although the GfK consumer confidence index saw a solid improvement on the month investors failed to take encouragement from the data, leaving the GBP/USD exchange rate biased to the downside.

As the general sense of market risk appetite diminished this helped to fuel demand for the safe-haven US Dollar, even in the absence of any major domestic data releases.

Even though the Federal Reserve looks set to keep monetary policy on hold for the foreseeable future this did little to limit the appeal of the US Dollar last week.

Three Things to Watch out for This Week

1. UK Unemployment Rate

With forecasts suggesting a fresh uptick in the UK unemployment rate demand for the Pound looks set to remain limited in the near term.

Evidence of a sustained deterioration in the health of the UK labour market could drag the GBP/USD exchange rate lower, with investors wary of the prospect of a further decline in employment levels.

2. UK Services PMI

However, greater focus is likely to fall on March’s UK services PMI, given that the sector remains the primary growth engine of the economy.

If the PMI can climb over the neutral baseline of 50 as forecast this would give investors incentive to pile back into the Pound as the odds of a negative first quarter gross domestic product diminish.

3. US Durable Goods Orders

A slowdown in durable goods orders growth could put a dampener on the US Dollar, meanwhile, as doubts over the resilience of consumer sentiment grow.

As long as the figure shows a sharp slowdown on the month the GBP/USD exchange rate looks set to benefit.

GBP/USD Exchange Rate Outlook

Fresh signs of strength within the UK service sector could help the Pound to US Dollar exchange rate return to a positive footing on Wednesday.

Louisa Heath

Contact Louisa Heath