The Pound US Dollar (GBP/USD) exchange rate dropped last week after a hotly anticipated speech from Federal Reserve Chair Jerome Powell. The speech heightened bets on further rate hikes from the Fed.
What’s Been Happening: Pound Drops as Recession Fears Weigh on Sterling
The Pound slipped over the course of last week amid a persistently poor outlook for the UK economy. Forecasts released by US bank Citi signaled that UK inflation could hit 18.6% in January.
Sterling regained some lost ground on Tuesday despite mixed PMI figures. The UK’s private sectors performed better than those of its peers which likely prompted the rise.
The raising of the UK’s energy price cap on Friday also weighed on GBP after Ofgem announced prices were set to increase by 80%.
The US Dollar slipped on Tuesday after a sharp contraction in the US services sector. This data, as well as a drop to durable goods orders on Wednesday, saw investors pare back bets on Fed rate hike.
Following the speech by Fed Chair Jerome Powell from Jackson Hole on Friday, the currency surged. Powell signaled the central bank would be increasing interest rates for some time.
Weekly highlights
- US Employment Figures
Unemployment is predicted to remain unchanged at lows of 3.5% which could bolster Fed rate hike bets. On the other hand, non farm payrolls are expected to ease. Will the payrolls figures limit gains for the currency?
- Fed Policymaker Speeches
This week will see a number of speeches from Fed board members. After Powell’s speech on Friday, will the speeches reaffirm rate hike bets and push USD higher?
- UK Cost-Of-Living Crisis
Recession fears could continue to weigh on the Pound this week as investors await a government response to soaring energy prices. As the Conservative leadership contest enters its final week, could the uncertainty continue to weigh on Sterling?
GBP/USD Forecast
An uptick in jobless claims could weigh on the US Dollar if Thursday’s figures print as forecast. An easing in output for the manufacturing sector could also push USD lower if PMI figures on Thursday slide.