The Pound US Dollar (GBP/USD) exchange rate remained volatile last week. Above-forecast inflation data for the UK saw the currency pair spike on Wednesday, before falling drastically on Thursday.
Better-than-expected US retail sales and consumer sentiment figures likely prompted the fall, as well as an uptick in US Treasury bond yields.
What’s Been Happening: UK Outlook Continues to Worsen as Inflation Bites into Wages
The Pound (GBP) saw mixed fortunes last week amid a worsening economic outlook for the UK. GDP figures on Monday missed forecasts as supply chain issues and raw material shortages hampered car manufacturing.
Wednesday’s employment figures likely pushed Sterling lower. Whilst the unemployment rate fell to 3.8% in February, real wage growth declined amid soaring inflation and the country’s cost-of-living crisis.
The Pound saw a steep climb following above-forecast inflation figures on Wednesday, however, rising at its fastest rate in three decades.
The US Dollar (USD) saw significant losses limited throughout the week by a continued hawkish stance from the Federal Reserve.
Thursday’s rise in US retail sales and unexpected increase in consumer sentiment helped the currency to recover much of its losses, however.
Weekly highlights
- UK & US PMIs
Both countries are forecast to show a fall across all private sectors. With the war in Ukraine and the UK’s cost-of-living crisis, could these figures be more dire than anticipated?
- BoE & Fed Speeches
The Bank of England (BoE) and Federal Reserve have shown wildly contrasting stances in recent weeks. Will the Fed continue to signal aggressive rate hikes? Will the BoE maintain its dovish stance amid soaring inflation?
- Ukraine-Russia Conflict
With reports indicating a fresh offensive by Russian forces in the Donbas region of Ukraine, risk sentiment and commodity prices are likely to continue to be affected.
GBP/USD Forecast
If sentiment around Ukraine sours and policy divergence between the Fed and the BoE widens, GBP/USD could have a hard time this week.