The Pound US Dollar (GBP/USD) exchange rate traded in a wide range last week, as UK inflation remained in double-digit territory.
What’s Been Happening: GBP Strengthens amid Hotter-Than-Expected CPI
Early last week, the Pound (GBP) endured choppy trade. While a forecast-beating rise in wage growth elevated rate hike bets, an uptick in unemployment kept trade subdued.
On Wednesday, the UK’s consumer price index showed headline inflation had cooled – but only to 10.1%. Because of this, investors began to bet on rate hikes beyond the May meeting, and considered a 25bps hike then all but guaranteed.
At the end of the week, Sterling was undermined by a sharp fall in retail sales. March saw sales drop by 0.9%, far below forecasts. This was, however, countered somewhat by upbeat private sector indexes which saw the UK’s service sector grow faster than expected.
Meanwhile, the US Dollar (USD) fluctuated amid shifting rate hike bets. At the start of the week, a lack of impactful data left the ‘Greenback’ weakened amid cheery trade.
Later in the week, a rise in jobless claims muted USD. However, the latest US private sectors PMIs pointed to growth in both manufacturing and services. The ‘Greenback’ saw some support amid signs of room for further tightening.
Three Things to Watch Out for This Week
- US Core PCE Data
The Federal Reserve’s preferred gauge of inflation is due to print on Friday. A slight cooldown could weigh on USD by weakening Fed rate hike bets.
- US Q1 GDP
Q1 GDP data for the US is due to print on Thursday. A 2% expansion of growth is forecast, which could bring cheer to markets and weigh on USD.
- UK CBI Data
The Confederation of British Industry (CBI) are due to release key data sets this week. While an improvement in factory orders could lend support, a fall in optimism may weaken GBP.
GBP/USD Outlook
With data relatively thin elsewhere, market sentiment could drive movement in GBP/USD through the first part of the week. If the market mood sours, the safe-haven ‘Greenback’ could strengthen.