The Pound US Dollar (GBP/USD) exchange rate rallied last week, with Rishi Sunak’s appointment as Prime Minister soothing investors.
What’s Been Happening: Fiscal Optimism Boosts the Pound
The Pound US Dollar (GBP/USD) exchange rate started off strongly last week, beginning a rally which lasted for most of the week on the back of Rishi Sunak’s coronation as Prime Minister.
The rally continued through the week up until Thursday, with investors shrugging off PMI flashes which showed the UK economy had contracted for another consecutive month. The confidence was born from Sunak himself, with the view that he would bring a return to fiscal orthodoxy.
However, following the news of a delay to the Government’s fiscal statement, GBP’s gains were clipped on Thursday. Investors grew unsure of how the Bank of England (BoE) would proceed with their upcoming interest rate decision, as they would have to make the decision largely in the dark.
Meanwhile, the US Dollar (USD) struggled last week, as consistently poor data releases coalesced with reports of the Federal Reserve slowing their tightening cycle.
A stronger-than-expected US GDP reading on Thursday boosted the ‘Greenback’ somewhat, before Friday’s underwhelming core PCE price index tempered these gains.
Three Things to Watch for This Week
- US Interest Rate Decision
With the markets already pricing in a 75bps rate hike on Wednesday, the spotlight will be on the Fed to deliver this. The following press conference may boost USD further.
- UK Interest Rate Decision
Thursday brings the BoE’s next interest rate decision. With the BoE having to do this without knowing the extent of UK fiscal policy, the size of final hike remains to be seen. A smaller rise may weaken Sterling.
- US Non-Farm Payrolls
Friday sees the release of the Non-Farm Payrolls. With a decrease expected, slowing employment in the US may dent the ‘Greenback’.
Pound US Dollar Outlook
The Pound US Dollar exchange rate could see a return to volatility this week, as investors could remain cautious ahead of the BoE’s interest rate decision. So far, GBP/USD has begun the week on the backfoot amid a risk-averse market mood.