The Pound US Dollar (GBP/USD) exchange rate soared last week, as US inflation set USD spiralling.
What’s Been Happening: US Dollar Succumbs to Lowering Inflation
The Pound US Dollar exchange rate began the week on decent ground but remained plateaued until a dramatic late-week rally saw the pairing hit an 11-week high.
The US Dollar began on weak footing. Investors became wary of smaller interest rate hikes from the Federal Reserve and were drawn away by a risk-on market. Adding to the ‘Greenback’s woes was the potential for political stalemate as the Republicans were likely to sweep the midterms.
Capping off a poor week for USD was inflation printing lower-than-expected on Thursday, which prompted USD investors to withdraw support. With higher rate hikes from the Feds seeming highly unlikely, a positive market sentiment saw investors trade elsewhere, leaving the safe-haven ‘Greenback’ behind.
Meanwhile, investors bought the dip on Monday prompting a weakened Sterling to begin to recover. However, domestic news kept Sterling’s gains limited until the sharp fall in US inflation aided a rising Pound.
With optimism towards a key Brexit issue flourishing as Rishi Sunak discussed the Northern Ireland Protocol, better-than-expected GDP data prompted GBP to rally further, closing the week on a strong note.
Three Things to Watch Out for This Week
- UK Government’s Autumn Statement
Thursday brings the latest budget from the UK government. Investors are expecting a raft of tax rises and spending cuts.. A potential return to fiscal orthodoxy may strengthen GBP.
- UK Inflation
Tuesday brings the UK’s October inflation data. A rise from 10.1% to 10.6% is forecast, meaning GBP may rally as markets expect higher BoE rate hikes.
- US PPI
Printing on Tuesday is the US’ PPI data for October. With a rise from 0.4% to 0.5% expected, USD could strengthen.
Pound US Dollar Outlook
The Pound US Dollar exchange rate may experience fresh volatility this week, due to the raft of data ahead. The core catalyst of movement may be investors anticipating the UK government’s Autumn Statement, which could strengthen GBP.