The Pound US Dollar (GBP/USD) exchange rate wavered last week, as the UK’s economic outlook remained downbeat.
What’s Been Happening: GBP Volatile amid Poor Outlook, Rate Hike Bets
The Pound began the week defensively, with the UK’s incoming recession in focus. Analysts, such as EY Item Club, stated they expected it to be twice as harsh as expected. A poor showing from January’s service PMI followed suit, sending Sterling lower.
Economic concerns gave way to interest rate hike bets, however. Investors began to price in a 50bps hike from the Bank of England (BoE), which brough modest tailwinds for Sterling. The Confederation of British Industry (CBI) then released distributive trades data, showing further falls in the UK’s retail sales.
Finally, an uninspiring speech from Chancellor Jeremy Hunt did little to cheer investors, leaving GBP muted.
Meanwhile, a mixed market mood infused volatility into the US Dollar. Early in the week, forecast-beating PMIs bolstered market risk appetite and weakened demand for the safe-haven currency.
Stronger-than-expected GDP growth caused the ‘Greenback’ to spike on Thursday. However, the Federal Reserve’s preferred inflation gauge painted a mixed picture. Monthly inflation appeared to accelerate, while yearly showed a decline. As such, USD continued to fluctuate through the end of the week.
Three Things to Watch Out for This Week
- BoE Interest Rate Decision
The Bank of England is due to publish their interest rate decision on Thursday. A 50bps hike is expected could support GBP, so long as the bank’s forward guidance isn’t too dovish.
- Federal Reserve Interest Rate Decision
The Fed will publish their interest rate decision on Wednesday evening. Markets forecast a 25bps hike, which may stoke expectations the Fed’s tightening cycle is nearing its end and weaken the US Dollar.
- US Non Farm Payrolls
Also in focus for USD investors will be the latest US non farm payrolls. Will a slowdown in employment growth undermine the ‘Greenback’ at the end of the week.
Pound US Dollar (GBP/USD) Outlook
The Pound US Dollar exchange rate may continue to trade in wide range this week., depending on the tone struck by the BoE and Fed.