The Pound US Dollar (GBP/USD) exchange rate fell over the course of last week. Sterling saw an early boost after UK Prime Minister Boris Johnson successfully beat a vote of no confidence. Before a sharp jump in US inflation triggered considerable demand for the US Dollar.
What’s Been Happening: Boris Johnson Survives Confidence Vote, US Inflation Skyrockets
The Pound saw a turbulent week, starting with a vote of no confidence in PM Johnson on Monday evening. Johnson survived the vote, but the number of MPs who voted against him was much higher than expected.
Warnings over the UK’s economic trajectory also did little to help boost the beleaguered Pound last week. On Wednesday, the Organisation for Economic Co-operation and Development (OECD) revised its forecasts to predict that the UK would be the slowest growing G7 economy in 2023.
The US Dollar (USD) made some gains last week off the back of a risk-off market sentiment. The easing of many of China’s Covid-19 curbs brought some optimism to the global markets, although these were swiftly upturned after the country announced further lockdowns.
The bulk of the US Dollar’s gains came at the end of the week however, with the release of the US consumer price index.
An unexpected surge in US inflation bolstered expectations of an aggressive rate hike from the Federal Reserve pushing USD exchange rates higher.
- Fed Interest Rate Decision
The potential for a 75 basis point interest rate hike from the Fed could bolster demand for the US Dollar this week.
- BoE Interest Rate Decision
With a 25bps rate hike priced in, the Bank of England’s (BoE) forward guidance will be a key focus. Will a dovish outlook sink the Pound?
- Northern Ireland Protocol
The UK government is set to bring forward legislation that could undermine the agreement. Could this prompt a UK-EU trade war?
Tensions between the UK and EU over the NI Protocol could pull the GBP/USD exchange rate lower should any legislation pass. While the Fed and BoE rate decisions could trigger some volatility.