GBP/USD Exchange Rate Gains as US Enters Technical Recession

The Pound US Dollar (GBP/USD) exchange rate saw some drastic movements last week. The currency pair ultimately ticked higher after the US Dollar (USD) fell into a technical recession.

What’s Been Happening: US Dollar Slumps despite Fed Rate Hike

The US Dollar began last week muted ahead of the Federal Reserve’s interest rate decision. Following the Fed’s decision to raise rates by 0.75% on Wednesday, the currency dropped sharply amid a cautious tone from Fed Chair Jerome Powell.

Thursday saw further losses for USD. GDP growth for the second quarter printed a surprise contraction, pushing the US economy into a technical recession.

Friday’s above-forecast rise to the PCE price index may have helped underpin the US Dollar, however.

Evidence of poor performance for the UK’s retail sector weighed on the Pound at the beginning of the week. July’s distributive trades figures indicated a further slump to retail sales.

Sterling saw some support throughout the week from bets on further action from the Bank of England (BoE). Following signals from Governor Andrew Bailey in weeks prior, investors saw increased chances of a 0.5% interest rate hike from the central bank.

GBP likely saw gains capped by political uncertainty, however.

Weekly highlights

  1. Bank of England Interest Rate Decision

Will the BoE surprise markets and deliver a 0.5% interest rate hike?

  1. US Employment Data

With unemployment forecast to remain low and non farm payrolls to fall, will USD fall on signs of a cooling labour market?

  1. US Balance of Trade

Will a narrowing of the US trade deficit help to bolster the US Dollar?

GBP/USD Forecast

The final reading of UK PMI figures could weigh on the Pound this week. Private sector growth is expected to fall in July.

Sterling may see additional movement following the BoE’s interest rate decision. Investors will be on the lookout for any relevant comments in the post-announcement press conference.

The US is also set to see fresh PMI figures this week. A forecast downturn to July’s figures could weigh on USD.

Gareth Monk

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