The Pound US Dollar (GBP/USD) exchange rate fell sharply last week as risk-off flows propelled the ‘Greenback’ to a 20-year high.
What’s Been Happening: Pound US Dollar Nosedives in Skittish Trade
The Pound US Dollar exchange rate slipped at the start of last week’s session as lockdowns across China continued to unsettle global markets. This drove a risk off sentiment and bolstered the safe haven ‘Greenback’.
Meanwhile, the UK’s cost of living crisis continued to unnerve GBP investors and dampened Bank of England (BoE) interest rate hike bets.
Midweek, USD was further supported by an uptick in US Treasury Yields and hawkish Federal Reserve interest rate hike expectations.
On Thursday it was revealed the US GDP for the first quarter contracted by 1.4%, missing forecasts of 1.1% growth. Despite this the US Dollar was able to extend its gains, rallying to a 20-year high in the process.
However, some USD profit taking and a risk on sentiment then helped the GBP/USD exchange rate to bounce back at the end of the week.
Three Things to Watch Out for This Week
- Interest Rate Decisions
The Fed and the BoE are both forecast to raise interest rates this week. Both hikes are largely priced-in thus investors will be looking towards their forward guidance. This may weigh on GBP/USD exchange rate as the Fed is expected to be significantly more hawkish in its outlook.
- US Non Farm Payrolls
The US economy is expected to add 400K payrolls in April. Although this is down from the previous month, another robust expansion in US employment growth is likely to reflect positively on USD.
- Russia-Ukraine War
Russia’s invasion of Ukraine is likely to continue governing risk sentiment. Should Vladimir Putin continue to warn the West against supporting Ukraine, it may further bolster demand for the US Dollar.
Pound US Dollar Forecast
Looking ahead, the GBP/USD exchange rate is likely to be influenced by the interest rate decisions and forward guidance delivered by the Fed and BoE.