The Pound US Dollar (GBP/USD) exchange rate soared last week, as US PMIs disappointed and investors repriced expectations for future Federal Reserve rate hikes.
What’s Been Happening: Multi-Month PMI Lows and Dovish Fed Sink US Dollar
The Pound US Dollar exchange rate began on a quiet note as the safe-haven ‘Greenback’ initially saw support from risk-averse trade amid a spike in Chinese Covid cases.
However, The US Dollar was unable to hold on to these gains for long particularly after American manufacturing and service PMIs hit multi-month lows. Manufacturing indexes pointed to a 30-month low, while service indexes showed a three-month low.
The release of the Federal Open Market Committee (FOMC) minutes then compounded these losses after showing a ‘substantial majority’ of policymakers favour slowing the pace of the Fed’s interest rate hikes.
Meanwhile, the Pound trended broadly higher over the week as hawkish Bank of England (BoE) policymakers lent Sterling support. Coupled with expectation-beating PMI releases, GBP was quick to capitalise on the US Dollar’s weakness.
However, with waves of strikes indicating future economic disruption, and inflation showing little sign of abating, investors remained wary.
Three Things to Watch Out for This Week
- US Payrolls
Centre stage this week will be the latest US payroll figures. Will an underwhelming release further undermine Fed rate hike expectations?
- ISM Manufacturing PMI
Another key focus for USD investors will be the latest ISM Manufacturing PMI. Expect to see the US Dollar weaken if growth in US factory sector contracted this month.
- Central Bank Speeches
Policymakers from both the Fed and BoE are due to speak throughout the week. Investors may be looking for any indication towards either bank’s monetary policy.
Pound US Dollar (GBP/USD) Outlook
The Pound US Dollar may strengthen this week, with the US due to see substantially more data than the UK. With a mixed picture expected, the ‘Greenback’ may weaken as inflationary pressures ease and the US economy begins to slow. However, dovish speeches from BoE policymakers may weaken GBP.