The Pound US Dollar (GBP/USD) exchange rate fluctuated wildly last week, as political chaos continued to affect the pairing.
What’s Been Happening: UK Political Headlines Continue to Rock Pound
The Pound US Dollar (GBP/USD) exchange rate began the week on a strong note, strengthening as Chancellor Jeremy Hunt outlined his plans to scrap large swathes of his predecessor’s mini-budget.
However, this rally was capped and reversed over the middle of the week, as Liz Truss’ position as Prime Minister began to look increasingly tenuous, and UK inflation data printed above market forecasts.
Another brief rally following Liz Truss’ resignation was then undercut by poor retail sales data for September. The figures served to highlight how badly the UK is being affected by the cost-of-living crisis. This fall in GBP exchange rates was compounded by the uncertainty over the UK’s political future.
Meanwhile, the US Dollar (USD) started the week on a sluggish note, with a risk-on market mood dominating trade.
However, USD began to rally steadily over the course of the week, as investors elected to move towards the safe-haven currency. This came as the Federal Reserve kept up their hawkish demeanour towards further rate hikes.
Three Things to Watch for This Week
- The New UK Prime Minister
The spotlight will be on the UK’s Conservative party as they elect their new leader. With Rishi Sunak leading the charge, will his economic background aid the Pound?
- US GDP
Thursday brings the release of the latest US GDP figures. An expected rebound in domestic growth in the third quarter could bolster the US Dollar.
- US Core PCE Price Index
The Fed’s preferred indicator for inflation, the core PCE price index is expected to have accelerated again last month. Will this bolster Fed rate hike bets and boost USD?
Pound US Dollar Outlook
The Pound US Dollar exchange rate could be struck by further volatility this week, depending on how the new UK Prime Minister is able to navigate the markets. However, with signs pointing toward Rishi Sunak as the next Prime Minister, GBP/USD has begun the week on a positive note.