The Pound US Dollar (GBP/USD) exchange rate traded in a wide range last week. Fluctuating market sentiment infusing volatility into the pairing.
What’s Been Happening: Mixed market Moods Stokes GBP/USD Volatility
The Pound US Dollar exchange rate got off to a poor start last week. While Sterling was undermined by a risk-adverse mood, the gloomy mood, coupled with a stronger-than-expected ISM non-manufacturing PMI bolstered the appeal of the safe-haven ‘Greenback’.
After remaining on the backfoot through the first half of the session, GBP/USD began to rebound in mid-week trade. This rebound was triggered by the announcement of a UK-US gas deal.
An improvement in market risk appetite also aided the pairing’s recovery. The US Dollar proved particularly vulnerable to the improving market mood.
Also dragging on USD exchange rates through the latter half of the week was a drop in US Treasury yields. A continued repricing of Federal Reserve rate hike bets driving the fall.
The Pound, meanwhile, found its ascent tempered by concerns over plans for widespread UK industrial action in the run up to Christmas.
Three Things to Watch Out for This Week
- Fed Interest Rate Decision
In the spotlight this week will undoubtedly be the Fed’s final interest rate decision of 2022. This is widely expected to see the Fed start to slow the pace of its rate hikes, with the US Dollar poised to slump if the bank indicates the pace of its hikes could continue to slow through the start of 2023.
- BoE Interest Rate Decision
The primary focus for GBP investors will be the Bank of England’s (BoE) own interest rate decision. Another 50bps increase is forecast this week. But will a cautious outlook lead the Pound to give ground?
- UK Inflation
Also set to influenced Sterling this week will be the UK’s latest CPI release. Another above forecast reading in November could stoke cost of living concerns and rattle GBP investors.
Pound US Dollar Outlook
A jam-packed data calendar could see the Pound US Dollar exchange rate fluctuate again this week. The Fed and BoE interest rate decisions likely to act as a particular source of volatility.