Pound US Dollar (GBP/USD) Exchange Rate Weekly Forecast: GBP Seesaws as UK Inflation Soars

The Pound US Dollar (GBP/USD) exchange rate was struck by volatility last week, as economic and domestic headlines affected GBP.

What’s Been Happening: UK Inflation and Budget Offer 1-2 Punch

The Pound US Dollar exchange rate began softly, and endured volatility over the last week despite a weakening US Dollar.

With more UK retailers sounding the alarm on Monday, Sterling began weakly. Despite a spike on Tuesday on the back of above-forecast wage growth, Wednesday brought a slump to GBP. With headline inflation jumping to 11.1%, a 41-year high, investors sentiment was mixed.

Thursday saw Chancellor Jeremy Hunt outline his Autumn Statement, and the confirmation that the UK was officially in recession. Sterling was damaged by the news, but an uptick in retail sales allowed GBP exchange rates to rally on Friday.

Meanwhile, the US Dollar’s week was mixed. USD exchange nosedived on Tuesday as a weaker-than-expected PPI release weighed on Federal Reserve interest rate hike bets.

However, due to the ‘unfortunate incident’ in Poland, fears were stoked over further escalations within the Ukraine-Russia conflict. As such, increasing geopolitical tensions throughout the week served to revive demand for the safe-haven ‘Greenback.’

Three Things to Watch Out for This Week

  1. US FOMC Minutes

On Wednesday evening, the US FOMC minutes will be published. Investors will be looking for any further information about the Federal Reserve’s monetary policy.

  1. Manufacturing and Service PMI Flashes

Wednesday brings manufacturing and service PMI flashes for both sides of the pairing. With contractions expected, GBP may weaken.

  1. US Durable Goods Orders

Also expected on Wednesday is the US durable goods orders data. With an uptick of 0.4% expected, USD may strengthen.

Pound US Dollar (GBP/USD) Outlook

The Pound US Dollar exchange rate may weaken this week, as the UK continues to grapple with the country’s recession. As such, any further news that demonstrates the recession’s impact on businesses may weaken Sterling. Meanwhile a cautious market mood could benefit the US Dollar.

John Mulcahey

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