The Pound US Dollar (GBP/USD) exchange rate traded in a wide range last week, as US inflation began to cool sharply. The pairing struck a 10-month high, but USD was able to recover some ground amid bearish trade.
What’s Been Happening: USD Slumps amid Cooling Inflation
Care of upbeat trade, the US Dollar (USD) began the week on precarious ground, losing out due to its safe-haven nature.
The US consumer price index release saw the ‘Greenback’ plummet against Sterling in mid-week trade. Headline inflation cooled to a near two-year low of 5%, prompting a sell-off.
USD investors continued to pare rate hike bets following dovish FOMC meeting minutes. A surprise cooling of producer prices cemented this, leaving USD weakened.
However, the ‘Greenback’ was able to make a recovery on Friday. Between an uptick in consumer sentiment and a slump in retail sales, USD capitalised on a souring market mood.
Meanwhile, the Pound (GBP) gained some ground early in the week. Hawkish comments from Bank of England (BoE) Governor Andrew Bailey indicated room for further rate hikes.
This was mollified on Thursday by the latest GDP data, which showed the UK economy had stagnated in February. Widespread industrial action exerted pressure on the economy.
Friday’s downbeat market mood saw GBP weaken against most of its peers.
Three Things to Watch Out for This Week
- UK Inflation
On Wednesday, the UK’s latest CPI data is due to print. Both headline and core inflation are forecast to fall, which could dent Sterling.
- UK Wage Growth
February’s average earnings release is due to print on Tuesday. Will a resilient wage growth reading bolster the Pound?
- Private Sector PMI Flashes
Both US and UK private sector indexes for April are due to print on Friday. A slowdown in the US private sector could sour the market mood, boosting USD.
GBP/USD Outlook
The UK’s latest wage growth data is due to print Tuesday. Economists forecast this to fall as employers adjust wages in line with cooling inflation, which could weaken GBP.