The Pound US Dollar exchange rate has started steadily this week after falling back from a three-year high on Friday following record growth in US manufacturing and service sector activity.
What’s Been Happening: US Dollar Recovers on Strong US Data
The US Dollar traded in a wide range last week as shifting market risk appetite and Federal Reserve policy speculation drove volatility in USD exchange rates.
After struggling amid generally upbeat trade, the US Dollar briefly rebounded following the minutes from the Federal Reserve’s latest policy meeting. USD exchange rates received a boost after policymakers hinted the central bank could soon taper its bond buying.
At the same time, the Pound also fluctuated as reopening optimism and an unexpected drop in the UK unemployment rate gave way to concerns over the Indian coronavirus variant and possible delays to the restrictions easing.
The Pound US Dollar exchange rate rallied to a three-year high on Friday following strong UK retail sales and PMI figures, before record high US private sector activity data helped USD recover nearer its levels at the start of the week.
Three Things to Watch Out for This Week
- UK Coronavirus Developments
Despite evidence suggesting vaccines are effective against the Indian variant of the coronavirus, concerns are growing that England’s relaxation of lockdown rules in June will be delayed while variants are assessed.
- US GDP
If the first quarter US GDP figures are upwardly revised following recent better-than-expected US economic data, the US Dollar could receive a boost.
- PCE Index
The Fed’s preferred indicator for inflation has the potential to support USD exchange rates ahead of the weekend. With forecasts indicating a rise in the index, investors will look for signs that the Federal Reserve could adjust its forward guidance for monetary policy.
Pound US Dollar Forecast
The GBP/USD exchange rate will be driven by high-impact US data releases and speculation over the Federal Reserve’s stance on inflation this week, while concerns over variants of the coronavirus mount in the UK.