The Pound US Dollar (GBP/USD) exchange rate is steady so far today after trending lower through last week’s session.
Shifting expectations for monetary policy tightening from the Federal Reserve and Bank of England (BoE) amid Omicron coronavirus variant concerns pushed GBP/USD lower.
What’s Been Happening: GBP/USD Slips on Central Bank Rate Hike Bets
The Pound (GBP) weakened through last week on fears over the Omicron variant and the risk posed by tighter restrictions.
Concerns drove reduced bets of a BoE rate hike in December due to the prospect of a more transmissible coronavirus that may make vaccines less effective and disrupt the UK’s economic recovery.
UK-EU talks over the Northern Ireland protocol remaining at an impasse also dented the Pound, with the US’s decision to maintain tariffs on UK metals linked to the possibility of the UK activating Article 16.
Meanwhile, the US Dollar (USD) traded in a wide range before finishing the week higher after comments from Federal Reserve Chair Jerome Powell provided a strong hint that the Fed will accelerate tightening monetary policy.
Fed monetary policy expectations continued to underpin USD strength despite disappointing US payrolls data, as unemployment fell more than expected, wage growth slowed, and the ISM services PMI jumped well above forecasts.
Three Things to Watch Out for This Week
- US Inflation
After Fed Chair Jerome Powell said ‘transitory’ should no longer be used to describe inflation, forecasts pointing to inflation having accelerated to 6.9% in November may provide more evidence for the Fed to accelerate tapering and move to raising interest rates.
- Omicron Variant Developments
Uncertainty over the potential impact of Omicron, the threat of renewed restrictions, and influence on central bank policy decisions will likely drive market risk appetite and GBP/USD movement as more data on the variant becomes available.
- UK GDP
The Pound may come under pressure on Friday as forecasts estimate UK GDP growth slowed in October to 0.5%, down from 0.6% in September.
Pound US Dollar Exchange Rate Forecast
The Pound US Dollar exchange rate may experience more volatility this week as the Omicron coronavirus variant continues to dominate headlines.
As the Federal Reserve and BoE December policy meetings draw nearer, shifting rate hike speculation and policymaker insights will likely drive additional volatility in GBP/USD.