The Pound US Dollar exchange rate (GBP/USD) climbed at the beginning of last week. Gains were limited ahead of US inflation data. Following a 40-year high rise to the US consumer price index, the exchange rate tumbled before quickly spiking amid a sell-off of the US Dollar (USD). Promising UK GDP figures on Friday helped boost the pair at week’s end.
What’s Been Happening: UK GDP rebounds after 2020 fall as US Inflation Leaps
The Pound began last week in a weakened position as the currency attempted to fend off ongoing Brexit-related headwinds and concerns over the UK’s cost of living squeeze.
Sterling was likely boosted at the end of the week by positive GDP figures however. The British economy was shown to have grown 7.5% across 2021. December’s GDP figures also showed a contraction below forecast of 0.2% despite the impact of the Omicron variant.
Trading in the US Dollar was bearish last week ahead of Thursday’s inflation data. Thursday’s inflation figures saw the biggest jump in US inflation for 40 years as the consumer price index rose to 7.5%. The release of the figures saw USD spike in the immediate aftermath, although the currency shed those gains amid a sell-off of the currency.
Weekly highlights
- UK Inflation Figures (Jan)
Whilst the year-on-year inflation rate is expected to remain high, month-on-month figures for January are forecast to dip significantly which could push Sterling down.
2. US FOMC Minutes
With many investors expecting a drastic rate hike at the Fed’s next meeting, Wednesday’s policy minutes could buoy the US Dollar should the Fed signal any hawkish moves.
3. Geopolitical Tensions
Escalating tensions at the Russia-Ukraine border are likely to continue to affect the currency pair after US President Joe Biden’s calls for all citizens and embassy staff in Ukraine to leave the country.
Pound US Dollar Forecast
The UK’s inflation figures on Wednesday could cause a dip in the Pound US Dollar exchange rate, especially if January’s month-on-month figures fall as sharply as expected.
Strong performance in either US or UK retail sales are also likely to prompt movement in the currency pair as consumer confidence returns.