The Pound US Dollar exchange rate started steadily this week after the Paris-based think-tank, Organisation for Economic Co-operation and Development (OECD), upgraded the growth forecast for the UK. However, the OECD also warned that the nation could struggle from economic damage from leaving the EU as well as the Covid-19 pandemic.
What’s Been Happening: Risk-On Market Mood Weighs on Safe-Haven ‘Greenback’
The Pound rose against the US Dollar last week as improving risk sentiment limited the appeal of the safe-haven ‘Greenback’.
Commonwealth Bank of Australia strategist Joseph Capurso explains:
‘The world economy is clearly recovering, and that is going to be bad for the US Dollar because it’s a counter-cyclical currency.’
Also limiting the US Dollar last week was the Federal Reserve’s complacency over rising US inflation.
In previous weeks the Fed maintained that rising inflation rates are ‘transitory’, but investors are cautious that a stronger-than-expected pandemic recovery could force the Fed to alter its policy in the coming months.
Meanwhile, the Pound rose thanks to news that Covid-19 vaccinations are effective against the Indian variant of the virus.
Rising infection rates in the UK, however, limited Sterling as fears rose over the possibility of June’s further easing of lockdown restrictions being delayed.
Three Things to Watch Out for This Week
- UK Services and Construction Data
This week will see the final construction and services PMI for Many. Any further signs that the UK economy is on the mend from the Covid-19 pandemic would be GBP-positive.
- US Employment Data
US Dollar investors will be eyeing this week’s latest US jobs data. If employment continues to fall in the world’s largest economy, then we could see the ‘Greenback’ begin to claw back some of its losses.
- Risk Sentiment
Global risk sentiment will be the determining factor for the US Dollar this week. As a result, the US Dollar could continue to fall if Covid-19 cases drop throughout Europe and Asia, as this would further bolster confidence in a worldwide economic recovery.
Pound US Dollar Forecast
The GBP/USD exchange rate could continue to head higher this week if the UK Government appears to be sticking to the further easing of lockdown measures on June 21.