The Pound US Dollar (GBP/USD) exchange rate traded in a wide range last week, following the latest Federal Reserve and Bank of England (BoE) interest rate decisions.
What’s Been Happening: GBP Oscillates on Dovish BoE Hike
Initially, the Pound (GBP) began the week on firm footing, underpinned by an upbeat market mood as the Bank of England (BoE) assured investors the UK’s banking sector was safe from contagion.
In contrast, rumours of a Fed rate hike pause and cheery trade limited US Dollar (USD) demand early last week.
After wobbling on Tuesday, a shock jump in UK inflation caused GBP/USD to spike in mid-week trade. While the ‘Greenback’ recovered ahead of the Federal Reserve’s decision, a dovish 25bps hike led to fresh selling pressure.
The BoE then delivered its own 25bps rate hike on this on Thursday. However, a lack of clear forward guidance prompted a muted response. Furthermore, the BoE appeared to signal this could have been the last hike.
While data showed the UK’s retail sector rebounded strongly in February, this was not enough to allow the Pound to consolidate its gains on Friday.
The GBP/USD exchange rate closed the week on a sour note as renewed jitters in the banking sector saw skittish investors flock to the safe-haven US Dollar.
Three Things to Watch Out for This Week
- US Core PCE Data
On Friday, the Fed’s preferred gauge of inflation is due to print. If it remains at the same level, USD could strengthen on elevated rate hike bets.
- BoE Speeches
BoE Governor Andrew Bailey is due to speak on Tuesday. If he provides hawkish forward guidance, GBP could rally.
- US Consumer Confidence Index
On Tuesday, the latest US consumer confidence index is due to print. If optimism decreases as forecast, the ‘Greenback’ could struggle.
GBP/USD Outlook
In addition to this week’s data, the Pound US Dollar exchange rate is likely to remain sensitive to events in the banking sector. Will GBP/USD rally if calmer heads prevail?