The Pound US Dollar (GBP/USD) exchange rate fell to two-year lows last week. The currency pair began the week on the back foot as a pessimistic economic outlook continued to push GBP/USD lower. A hawkish stance on future rate hikes from Federal Reserve officials also weighed on the pair.
It was Thursday’s poor UK GDP figures, however, that ultimately kept GBP/USD suppressed until week’s end. The figures contributed to fears of an early UK recession.
What’s Been Happening: Fears of UK-EU Trade War as NI Protocol Negotiations Falter
The Pound (GBP) continued to suffer last week as a surprise contraction the UK economy in March weighed on the currency. The figures also heightened fears that the country could slide into a recession.
Heightened rhetoric over the Northern Ireland Protocol likely also pressured Sterling last week. UK foreign secretary Liz Truss warned EU negotiators that she may have ‘no choice’ but to alter the protocol.
Meanwhile, the US Dollar (USD) saw a sustained rally last week amid a mostly risk-off mood as fears of a global slowdown grew. Persistent signalling from Fed officials that the central bank would continue with its rate hike schedule also helped boost USD.
Higher-than-expected US inflation figures also kept these expectations high. Whilst the rate of inflation slowed, figures remained close to a 40-year high.
Weekly Highlights
- Fed Speeches
With multiple Fed speeches expected, including from Chair Jerome Powell on Tuesday, could USD soar off the back of hawkish Fedspeak?
- UK Inflation
UK inflation is expected to hit fresh highs on Wednesday. Will Sterling climb off rate hike expectations or fall on cost-of-living fears?
- Northern Ireland Protocol Talks
With UK PM Boris Johnson set to visit NI this week, an impasse in negotiations could see the Pound tumble.
GBP/USD Forecast
A consistently hawkish tone from the Fed could continue to push GBP/USD lower in the coming week. Higher UK inflation and Brexit tensions could weigh on Sterling, which may in turn also see the pair tumble.