The Pound US Dollar (GBP/USD) exchange rate climbed steadily over the course of last week ahead of the Bank of England’s (BoE) interest rate decision last week. The currency pair leaped in the aftermath of the central bank’s decision, although suffered a drop on Friday following higher than forecast US payrolls figures.
What’s Been Happening: BoE Raises Rates as US Payroll Figures Surprise Investors
The Pound (GBP) began the week on a steady climb amid a risk-on market mood, as well as seeing a boost from better-than-expected manufacturing PMI figures on Tuesday. Speculation of an imminent rate hike by the BoE on Thursday also helped keep Sterling buoyed.
Thursday’s decision by the BoE to raise interest rates to 0.5% saw GBP shoot upward following the announcement. BoE Governor Andrew Bailey stated that the move was necessary in order to prevent high inflation from become entrenched.
Additionally, a surprisingly hawkish turn by the European Central Bank (ECB) also harmed the US Dollar’s (USD) chances, as investors flocked to the Euro (EUR).
Higher than expected payrolls figures for January helped prompt a short-term rally for USD and increased speculation of a more aggressive rate hike by the Fed in March.
Weekly highlights
- UK Political Uncertainty
Ongoing uncertainty over the future of Boris Johnson amidst the furore over the Downing Street ‘partygate’ scandal will no doubt continue to inject volatility into the Pound this week.
2. US Inflation Rate
US inflation figures on Thursday are expected to rise for the fourth consecutive month, giving potential evidence for further rate hikes by the US Federal Reserve.
3. UK GDP
Growth in the UK is forecast to drop in December, will this push Sterling lower or will a robust accompanying fourth quarter reading help to mitigate any losses?
GBP/USD Forecast
The currency pair’s movements are likely to be dictated by a forecast rise in US inflation data, as the figures are likely to prompt investor speculation of a more aggressive March rate hike by the Fed and potentially push USD up.
Friday’s GDP figures for the UK could also affect the pair, as poor growth figures for the UK are likely to see the Pound slip.