The Pound US Dollar (GBP/USD) exchange rate has started this week extending Friday’s sharp losses.
Deadlock in talks between the UK and EU on the Northern Ireland protocol, UK-France tensions over fishing rights, and the US Dollar strengthening are weighing on GBP/USD.
What’s Been Happening: GBP/USD Tumbles amid Brexit-Related Tensions
The Pound (GBP) firmed at the start of last week as data modelling for the UK government suggested Covid-19 cases may decline quickly over the coming months.
However, Sterling experienced volatility following the UK autumn Budget before slumping on Friday amid an escalating fishing rights row between the UK and France, and stalling UK-EU talks on the Northern Ireland protocol.
Meanwhile, the US Dollar (USD) fluctuated before ending the week surging higher.
Third quarter US GDP data released on Thursday dented the US Dollar, revealing a worse-than-expected slowing of 2% growth, down from the second quarter reading of 6.7%.
However, the US Dollar recovered and surged higher on Friday in end of month trade, buoyed by a risk-off mood fuelling safe-haven demand, firming US Treasury yields, and Federal Reserve taper expectations following the PCE index showing inflation rose to 4.4% in September.
Three Things to Watch Out for This Week
- Federal Reserve Interest Rate Decision
With the Fed widely expected to announce plans to tighten monetary policy by tapering its bond-buying programme, the US Dollar may receive a boost on Wednesday.
- Bank of England Interest Rate Decision
The Bank of England (BoE) looks set to drive significant movement in GBP later in the week.
Despite some analysts predicting an interest rate hike at November’s meeting, many view a rise in December or early 2022 as more likely, with investors looking for hints when an increase may happen.
- US Non Farm Payrolls
Following September’s disappointing US job market data, a solid forecast rise of 450,000 jobs added to the economy could bolster the ‘Greenback’ at the end of the week.
Pound US Dollar Exchange Rate Forecast
After starting the week on weaker footing, the Pound US Dollar exchange rate looks set for further significant swings this week as the UK and US central bank interest rate decisions drive movement in GBP/USD.
At the same time, the US Dollar may receive additional support from the ISM manufacturing and services PMIs showing another month of robust growth in October.