The Pound US Dollar (GBP/USD) exchange rate slumped over the past week after UK inflation hit a fresh 40-year high.
What’s Been Happening: Pound Slips as Real Pay Declines at Record Rate
The Pound fell last week as the UK’s long-term outlook continued to worsen.
Tuesday’s employment figures may have lent some support to the currency. Strong-wage growth figures bolstered bets for more aggressive interest rate hikes from the Bank of England (BoE).
The wage figures continued to lag behind inflation, which struck 10.1% in July, with the figures adding to fears that the UK is likely to see a recession in 2022.
The US Dollar was pushed higher last week amid sustained bets on further rate hikes from the Federal Reserve.
The release of the latest FOMC minutes on Wednesday likely added to this sentiment. Despite some cautious language, the minutes confirmed the Fed’s commitment to further hikes.
Reinforcing this upside in the US Dollar were also sustained risk-off flows.
Weekly highlights
- August Service PMIs
The latest PMI reading for the UK’s service sector is forecast to report another slowing of growth in August which could weigh on Sterling. A forecast positive reading for the US services sector could help USD to climb, however.
- Fed’s Jackson Hole Symposium
The Federal Reserve’s annual symposium will take place this week. Investors will be watching for signs of the Fed’s policy tightening schedule. Could Fed Chair Jerome Powell push back against market bets?
- US GDP
Confirmation the US slipped into a technical recession in the second quarter could act as a headwind for the US Dollar this week.
GBP/USD Forecast
Industrial action at Felixstowe docks could dent confidence in the Pound this week.
Friday’s reading of the PCE price index, the Fed’s preferred measure of inflation, could pull USD lower if it slips as forecast in July. A speech from Fed Chair Jerome Powell later that day could help to curb any losses, however.