A sense of optimism over the UK’s progress towards relaxing national lockdown restrictions encouraged the GBP/USD exchange rate to recover ground at the start of the new week.
Last Week: Lower UK Unemployment Rate Fails to Boost Pound Appeal
While the UK unemployment rate saw a surprise dip in February this was not enough to shore up the Pound last week.
As the accompanying average earnings data proves less encouraging in nature this left the Pound to US Dollar exchange rate on the back foot.
A sharp increase in March’s CB leading index helped to push the US Dollar higher across the board, meanwhile, with signs pointing towards the US economy performing well at the end of the first quarter.
Strong improvement in the latest manufacturing and services PMIs also gave USD exchange rates a leg up ahead of the weekend, especially as worries over the global growth outlook lingered.
Three Things to Watch out for This Week
1. CBI Distributive Trades Index
Confidence in the health of the UK economy could improve on Tuesday with the release of April’s CBI distributive trades index.
After the sharp -45 reading seen in March investors are hoping for a solid rebound in the index, putting it back into positive territory and signalling renewed growth in UK retail.
2. Federal Reserve Interest Rate Decision
The mood towards the US Dollar may sour in the wake of the Federal Reserve’s April policy announcement, even though no change in monetary policy is expected.
As long as policymakers reaffirm their plans to keep interest rates on hold for the foreseeable future, in spite of rising inflationary pressure, USD exchange rates could come under pressure.
3. US Gross Domestic Product
However, demand for the US Dollar could easily pick up in response to another strong showing from the first quarter US gross domestic product report.
Forecasts point towards the growth rate strengthening even further on the quarter, with a 6.5% growth rate likely to give investors incentive to pile back into the US Dollar.
Fresh signs of strength within the UK retail sector may help to keep the Pound to US Dollar exchange rate on a positive footing ahead of Wednesday’s Federal Reserve policy announcement.