The Pound US Dollar (GBP/USD) exchange rate found fleeting gains last week. As a threat to the UK’s credit rating reversed the pairing’s initial gains.
What’s Been Happening: Credit Rating Concerns Weigh on the Pound
The Pound US Dollar exchange rate initially rallied last week. Kwasi Kwarteng’s U-turn on his plans to cut the 45p tax rate for the UK’s highest earners cheered GBP investors, amid hopes the Chancellor might rethink other parts of his mini budget.
Sterling then began to relinquish is gains in the middle of the week. In her speech at the Conservative party conference, Liz Truss claimed she will keep an ‘iron grip’ on the UK’s finances. However, GBP investors were unconvinced.
This downtrend in the Pound then accelerated following a warning that the UK’s credit rating could be downgraded. Fitch joined S&P in cutting its outlook for the UK’s credit rating from ‘stable’ to negative’.
The US Dollar, meanwhile, sunk in the first half of the week amid a prevailing risk-off mood. Although USD exchange rates quickly bounced back as sentiment began to sour in mid-week trade.
The end of the week then saw the ‘Greenback’ extend its recovery on the back of a stronger-than-expected US payroll release. September’s robust figures bolstered expectations for future Federal Reserve interest rate hikes.
Three Things to Watch for This Week
- US Inflation Rate
In the spotlight this week will be the latest US consumer price index. Will another above forecast inflation print propel the US Dollar sharply higher?
- UK Employment Figures
The primary focus for GBP investors this week is likely to be the UK’s latest jobs report. If wage growth accelerated while domestic unemployment held at a near 50-year low, Sterling may strengthen.
- UK GDP
Also potentially influencing the Pound this week will be the UK’s latest GDP release. Will a contraction in growth in August weigh on GBP exchange rates?
Pound US Dollar Outlook
The Pound US Dollar exchange rate is also likely to remain sensitive to UK fiscal and political uncertainty. Any more setbacks for Liz Truss could inject fresh volatility into the pairing.