The Pound US Dollar (GBP/USD) exchange rate fell off a cliff last week, as the Bank of England (BoE) signalled that the UK had entered a recession.
What’s Been Happening: BoE Signals Economic Gloom for Pound
The Pound US Dollar exchange rate began the week on a hopeful note before consistent downbeat data snuffed Sterling’s prospects.
Despite optimistic manufacturing PMIs, food inflation reaching a record 11.6% combined with poor consumer credit borrowing hurt GBP.
This set the stage for the BoE to undercut a historically large 75bps rate hike by announcing that the UK had entered a recession, which may last for two years. This prompted the Pound to crash.
While GBP attempted to rally on Friday, the currency settled at levels far below the week’s starting point.
Meanwhile, the US Dollar (USD) began the week slowly, before rallying from Wednesday on. This came after the Federal Reserve announced the expected rate hike and demonstrated their policy tightening was here to stay. The hawkish rhetoric served to continue strengthening the ‘Greenback’.
However, Friday brought a slump in USD on the fears of rate hikes slowing following a mixed jobs report.
Three Things to Watch Out for This Week
- US Inflation
Thursday brings the latest inflation data for the US. With a fall from 8.2% to 8% expected, USD may be dented as markets trim Fed rate hike bets.
- UK GDP
Friday brings the UK’s GDP data. The data is expected to show a third-quarter contraction of 0.5%, which may weaken the Pound by stoking recession fears.
- Central Bank Speeches
With Fed and BoE officials speaking throughout the week, investors may keep a close eye on any further policy indications.
Pound US Dollar Outlook
The Pound US Dollar exchange rate is likely to readjust this week, with the markets aiming to reprice in the wake of last week’s crash. However, the upcoming UK GDP data may serve to weaken the GBP/USD. Any further speeches from policymakers on either side of the pairing may sway the exchange rate.