The Pound US Dollar (GBP/USD) exchange rate is edging higher at the start of this week after rallying on Friday to regain some of last week’s losses.
What’s Been Happening: Pound Slumps as Fuel Shortages Hit UK
The GBP/USD exchange rate fell sharply through last week as fuel shortages gripped the UK. Wider worries of stagflation in the UK economy continued as inflationary pressures rise, natural gas prices hit record highs, and supply chain problems persist.
The Pound had started the week strongly, benefitting from the tailwinds of the Bank of England’s (BoE) latest interest rate decision, where the central bank signalled its intention to tighten monetary policy.
However, Sterling rallied at the end of the week to recover some of its losses after UK second quarter GDP was upwardly revised to 5.5% from 4.8%, and market sentiment improved.
Meanwhile, the US Dollar surged in midweek trade due to increased safe-haven demand amid a risk-off mood and rising US Treasury yields.
Market sentiment soured on the threat of an equity market selloff triggered by Chinese property giant Evergrande’s debt, the mounting energy crisis in Europe, power outages in China, and global supply chain problems.
However, USD softened at the end of the week on a more upbeat market mood that weighed on the safe-haven currency.
Three Things to Watch Out for This Week
- Non Farm Payrolls
The US Dollar could receive a boost at the end of the week if the US jobs report shows robust job creation in September.
The payrolls report could confirm the Federal Reserve’s expectation that the economy is recovering and prompt monetary policy tightening soon.
- ISM Non-Manufacturing PMI
Another strong month of expansion in the US services sector could also boost USD exchange rates as it would support US growth forecasts and the case for tighter Fed monetary policy.
- UK Stagflation Fears
Positive or negative developments in the ongoing UK fuel shortages may continue driving volatility in GBP exchange rates this week, while the energy crisis and supply chain problems may continue weighing on the UK’s economic growth outlook.
Pound US Dollar Forecast: Will USD Extend Gains on US Jobs Report?
The Pound US Dollar exchange rate could experience more volatility this week as the UK fuel crisis continues, high-impact US data is released, and risk appetite shifts.
The key driver of GBP/USD movement will likely be the US non farm payrolls report on Friday where a significant rise in employment would likely reinforce the Fed’s case to tighten monetary policy.