The Pound US Dollar (GBP/USD) exchange rate fell after the Bank of England’s (BoE) interest rate decision on Thursday. The central bank’s gloomy forecasts for the UK economy also likely pulled the currency pair lower.
What’s Been Happening: Pound Tumbles Despite Largest BoE Hike since 1997
The Pound began last week on the backfoot, although saw drastic losses initially limited by bets of a 0.5% rate hike from the BoE.
Thursday saw the BoE confirm the 0.5% interest rate rise, its largest since 1995. The central bank’s pessimistic forecasts saw Sterling tumble, however. The BoE issued fresh warnings that inflation was set to climb above 13% by the end of 2022, potentially pushing the UK economy into a recession.
The US Dollar also began last week trending lower after poor growth figures for the country’s industrial sector. A recovery in the US services PMI later in the week likely helped USD exchange rates to rebound.
Hotter than expected employment figures helped to turbocharge the US Dollar on Friday. Non farm payrolls for July saw 528,000 jobs added to the US economy versus the 250,000 forecast.
Additionally, unemployment in July fell to 3.5% which was its lowest point since February 2020.
The data releases indicated that the US labour market had returned to its pre-pandemic levels. This helped to strengthen bets on further rate hikes from the Federal Reserve, strengthening USD in turn.
Weekly highlights
- US Inflation
A key focus this week will be the US consumer price index. Will another acceleration of inflation bolster Fed rate hike bets and propel the US Dollar higher?
- UK GDP
An expected contraction of growth in the second quarter is likely to stoke UK recession fears and may push the Pound lower later this week.
- US Consumer Sentiment
The end of the week will also see the release of the latest US consumer sentiment index. Will another improvement in morale reflect positively on USD?
GBP/USD Forecast
The Pound US Dollar exchange rate may also be influenced by UK political developments, with the ongoing uncertainty of the Conservative leadership race potentially limiting Sterling’s upside potential.