The Pound US Dollar (GBP/USD) exchange rate briefly struck a one-month high last week, before swiftly retreating amidst broad USD demand.
What’s Been Happening: US Dollar Shakes off Softer US Inflation Reading
The Pound US Dollar exchange rate initially trended higher last week, with an upbeat UK jobs report, coupled with data showing that US inflation slowed for the first time since October 2020.
This propelled the pairing to a one-month, but only for a short while, with the US Dollar swiftly recouping its losses as concerns over China’s growth trajectory soured market sentiment and bolstered safe-haven demand.
Not even a stronger-than-expected UK inflation reading was able to prevent the Pound’s retreat in the middle of last week.
This pullback in Sterling was partly attributed further economic uncertainty in the UK, amidst concerns an emerging energy crisis could compromise the country’s economic recovery.
The GBP/USD exchange rate then closed the week trading at a two-week low, as a shock contraction in UK retail sales, in combination with a gloomy market mood took a heavy toll on the pairing.
Three Things to Watch for This Week
- Fed Tapering News
The spotlight this week will undoubtedly be on the Federal Reserve as it concludes its September policy meeting, with USD investors particularly focused on whether the Fed will offer any clarity on its tapering plans.
- BoE Policy Statement
The Bank of England (BoE) will also conclude its latest policy meeting this week. No policy changes are expected, but a hawkish policy statement could help to prop up the Pound.
- UK Supply Concerns
Also likely to influence Sterling sentiment this week are growing concerns over the UK’s current supply issues, particularly in regards to gas shortages which could have a major knock-on impact on the UK economy.
Pound US Dollar Outlook
The Pound US Dollar exchange rate looks to be infused with some notable volatility over the coming week as all eyes will be on the latest central bank rate decisions.