The Pound US Dollar (GBP/USD) exchange rate raced higher in the last week of 2021, with Sterling underpinned by the UK government’s resistance to tightening Covid measures in England.
What’s Been Happening: Pound Jumps as England Avoids Tighter Restrictions
The Pound enjoyed strong support through last week’s truncated session, with Sterling accelerating in holiday-thinned trade as the UK government confirmed it would not be tightening Covid restrictions in England before the New Year.
GBP investors cheered the decision, amidst fears the introduction of additional measures could have further suppressed economic activity at the end of 2021 and into 2022.
At the same time, the US Dollar ended the year on a sour note, with the safe-haven currency struggling to attract support amidst easing concerns over the Omicron Covid variant.
USD exchange rates were also undermined by a fall in US Treasury yields, which remained suppressed amid disappointment that US President Joe Biden was unable to pass his $1.75tn spending package before the New Year.
Three Things to Watch Out for This Week
- UK Covid Developments
The start of 2022 will be similar to that of 2021, with GBP investors focused on domestic Covid headlines. However, the UK government’s resistance to imposing stricter restrictions could result in a more positive start to the year for the Pound this time round.
- US Payrolls
Acting as a key catalyst for the US Dollar this week will be the publication of the latest US payroll figures. If the number of jobs added to the US economy accelerated as expected last month, then the ‘Greenback’ may jump.
- FOMC Minutes
USD investors will also be focused on the publication of the minutes from the Federal Reserve’s December policy meeting. Should these support speculation the Fed might begin hiking interest rates from March then the US Dollar could strengthen.
Pound US Dollar Forecast
Looking ahead, the Pound US Dollar exchange rate may maintain a positive trajectory this week so long as UK Covid developments remain broadly upbeat, although some strong US data could test the pairing’s strength in the second half of the session.