The Pound US Dollar (GBP/USD) exchange rate tumbled again last week. The pairing slumped as another spike in US inflation stoke expectations for a 100bps rate hike from the Federal Reserve.
What’s Been Happening: USD Soars amid Rate Hike Bets
The US Dollar (USD) made strong gains throughout the week off the back of bets on a bumper rate hike from the Fed. Markets began to price in a 1% rate hike after Wednesday’s CPI figures report domestic inflation spiked to 9.1% in June, it’s largest gain since 1981.
The safe-haven ‘Greenback’ also benefitted from a largely risk-off market mood last week. Indications of an economic slowdown in China and a potential energy crisis in Europe prompted global recession fears.
However USD exchange rates then falters at the end of the week as investors scaled back their Fed rate hike expectations in spike of an above-forecast retail sales print.
The Pound (GBP), meanwhile, slipped last week amid political uncertainty in the UK. The beginning of the week saw the leadership contest to select a replacement for PM Boris Johnson begin in earnest.
A surprise return to growth helped Sterling make some gains on Wednesday. May’s GDP rose by 0.5%, prompted by a surge in GP and holiday bookings. However these gains proved short-lived.
Weekly highlights
- UK Employment Figures
With unemployment forecast to remain unchanged and earnings expected to have continued to lag behind inflation, will cost of living concerns weaken the Pound?
- UK Inflation
Economists forecast UK inflation will have continued to accelerate last month, potentially placing even more pressure on Sterling sentiment, unless it is seen as bolstering Bank of England (BoE) rate hike expectations.
- Fed Rate Speculation
With US data thin on the ground this week, movement in the US Dollar may remain tied to Fed rate hike bets, potentially leading to some weakness if USD investors continue to rein in their expectations.
GBP/USD Forecast
Friday’s PMI figures could also pull GBP/USD lower if they print as forecast. Both UK and US PMI figures are expected to dip which could fuel concerns of a potential global recession.