After fluctuating through last week, the Pound US Dollar (GBP/USD) exchange rate is ticking higher today as UK government officials described talks on the Northern Ireland protocol as ‘constructive’.
What’s Been Happening: Pound Volatile Following UK Inflation Data
The Pound (GBP) experienced volatility last week as slower-than-expected UK inflation of 3.1% caused investors to reprice an interest rate hike from the Bank of England (BoE).
Following the data release, Sterling slumped but later recovered on expectations the central bank could still raise interest rates by the end of this year or early 2022.
The Pound ended the week fluctuating again following mixed UK data. Retail sales unexpectedly contracted -0.2% in September instead of returning to growth, while upbeat manufacturing and services indicated better-than-expected growth in both sectors.
Meanwhile, the US Dollar (USD) moved in line with shifting market sentiment in the absence of notable US data releases last week.
A prevailing risk-on mood weighed on demand for the safe-haven currency through most of the week, before news that Chinese property giant Evergrande could default on debt payments and spark an equity market selloff soured market sentiment and boosted USD.
Three Things to Watch Out for This Week
- UK Autumn Budget
Plans for UK spending will be in focus on Wednesday, with some movement in the Pound likely if Chancellor Rishi Sunak outlines significant support for country’s economic recovery.
- US Durable Goods Orders Figures
For USD investors, the first notable data release of the week is September’s durable goods orders. With a -1% contraction expected, the US Dollar may come under pressure due to concerns over US economic growth.
- US Q3 GDP
Forecast slowing third quarter GDP growth may also fuel concerns over the US economy’s performance, with a 2.8% growth reading expected, slowing from the second quarter’s 6.7%.
Pound US Dollar Forecast
The Pound US Dollar exchange rate could be set for more volatility this week on shifting market sentiment, the UK government’s autumn budget, and high-impact US data releases.
As investors widely expect the Federal Reserve to begin tapering its bond-buying programme soon, and BoE rate hike expectations appearing priced in, inflation and monetary policy tightening speculation may have a less significant impact as in recent weeks.