The Pound to US Dollar exchange rate rebounded sharply this morning as optimism over easing Covid-19 lockdown conditions continued to bolster market confidence.
Last Week: Underwhelming UK GDP Limited Pound US Dollar Exchange Rate Traction
As February’s monthly UK gross domestic product figure failed to pick up as far as forecast this left the Pound on a weaker footing against its rivals last week.
While the growth rate returned to positive territory on the month this was not enough to encourage renewed confidence in the economic outlook, especially in the wake of a widened trade deficit.
Demand for the US Dollar picked up ahead of the weekend, meanwhile, thanks to an unexpectedly sharp rebound in March’s retail sales data.
With consumer spending rising sharply, reversing the previous month’s decline, investors saw fresh reason to bet on the relative resilience of the US economy and the prospect of a stronger first quarter of growth.
Three Things to Watch out for This Week
1. UK Unemployment Rate
Demand for the Pound could weaken once again on the back of February’s unemployment rate, with forecasts pointing towards a modest uptick.
Evidence of deteriorating labour market conditions could see the Pound falling out of favour with investors, as worries over the health of the UK economic outlook linger.
2. UK Inflation Rate
On the other hand, with the headline UK inflation rate looking set to rise in March the GBP/USD exchange rate could find fresh support.
Signs of rising inflationary pressure may give the Bank of England (BoE) greater cause for confidence moving forward, even if the odds of any monetary policy action remain slim.
3. US Initial Jobless Claims
With markets expecting to see an increase in jobless claims on the week the mood towards the US Dollar could sour, meanwhile.
As long as employment looks set to remain under pressure in the coming months, in spite of signs of economic stabilisation, USD exchange rates may prove exposed to selling pressure.
A higher UK inflation rate could help to keep the Pound to US Dollar exchange rate on a positive footing this week, with stronger inflationary pressure likely to encourage BoE policymakers.