The Pound US Dollar (GBP/USD) exchange rate traded in a wide range over the past week. Optimism over the Northern Ireland Protocol was undone by a dovish speech from Bank of England (BoE) Governor Andrew Bailey.
What’s Been Happening: GBP Fluctuates as Dovish BoE Unwinds Rate Hike Bets
The Pound initially climbed last week amid optimism over a new agreement to resolve the UK-EU dispute over the Northern Ireland protocol. It’s hoped the so-called ‘Windsor Framework’, will lead to more amicable trade between the two sides.
However, the strength brought to GBP was undone on Wednesday by a dovish speech from BoE Governor Andrew Bailey. In his speech, Bailey hinted interest rates may have peaked, triggering a Sterling sell-off.
The Pound was able to recover at the end of the week, however. On Friday, the final services index showed that the sector expanded more than thought in February.
Meanwhile, trade in the US Dollar was sluggish over the last week. Initially, weak US consumer confidence and an underwhelming ISM manufacturing index dented USD. Bullish trade across markets further sapped sentiment towards the safe-haven currency.
A brief rally occurred after US jobless claims showed the labour market remained tight, which sparked further Federal Reserve rate hike bets. Before a stronger-than-forecast ISM non-manufacturing PMI cheered markets and sapped USD demand at the end of the week.
Three Things to Watch Out for This Week
- UK GDP
January’s UK GDP data is due to print on Friday. Forecasts anticipate a growth rate of 0.1%, which could elevate GBP.
- Fed Chair Powell Testimony
Fed Chair Jerome Powell is due to testify before US Congress this week. If he strikes a hawkish stance, USD could climb.
- US Non Farm Payrolls
February’s non farm payrolls data is keenly awaited this week. Will another larger-than-expected increase in employment growth catapult the US Dollar higher?
GBP/USD Outlook
Due to a relatively thin data calendar, GBP may be sensitive to domestic headwinds. A potential House of Commons vote on the Windsor Framework could inject volatility into the Pound US Dollar exchange rate.