The Pound US Dollar (GBP/USD) exchange rate saw some volatile shifts over the past week, ultimately settling close to its starting position. This volatility stemmed from some mixed UK data, mostly notably a larger-than-expected drop in US inflation
What’s Been Happening: Pound Slumps as Cooler Inflation Prompts BoE Bet Pullback
The Pound (GBP) strengthened on Tuesday after the latest employment data. Unemployment held steady at 3.7% in December, while wage growth beat expectation.
Sterling then tumbled on Wednesday after below-forecast inflation data. UK Inflation fell to 10.1% in January which saw markets pare back bets on further interest rate hikes from the Bank of England (BoE).
In contrast a stronger-than-expected US inflation print bolstered the US Dollar on Tuesday. The data prompted investors to increase their bets on further action from the Federal Reserve.
A surprise leap in January’s retail sales provided a further boost to USD on Wednesday.
Thursday’s data added to USD’s upward momentum as jobless claims remained close to previous lows. An above-forecast rise in January’s PPI added to bets on further Fed rate hikes.
Dovish comments from Fed policymakers on Friday saw the US Dollar relinquish the majority of its gains, however.
Weekly Highlights
- UK PMIs
February’s PMIs are expected to point to a further downturn in the UK’s private sectors. Could a slump in services sector growth weigh on GBP?
- FOMC Minutes
Alongside key data releases this week, investors will be looking to the latest Fed minutes for signals of further policy tightening. Could the minutes offset last week’s dovish comments and boost USD?
- US Core PCE Price Index
The Fed’s preferred measure of inflation is forecast to tick higher on Friday. Will the evidence of persistent inflationary pressures push the US Dollar higher?
GBP/USD Forecast
Further news concerning UK-EU negotiations on Northern Ireland’s trade borders could prompt movement in the Pound this week.
For USD, a predicted drop in private sector performance could dent the currency if February’s PMIs print as expected on Tuesday.