Pound US Dollar Weekly Forecast: GBP/USD Strikes 11-Month High Following Dovish Fed Pivot

The Pound US Dollar (GBP/USD) exchange rate strengthened last week, as a dovish pivot from the Federal Reserve weighed on USD.

What’s Been Happening: Fed Strikes Dovish Note, Bank Anxieties Return

At the beginning of the week, the US Dollar (USD) enjoyed limited support. The ISM manufacturing for April printed at 47.1, above forecasts but still in contractionary territory.

JOLTs job openings for Tuesday failed to provide much impetus, by falling further than expected in March. With signs a cooldown in the US labour market, investors began to pare back their bets on further tightening.

On Wednesday, while the ISM services index came in above forecast, gains were short lived. The Federal Reserve delivered the expected 25bps hike, but Fed Chair Powell’s accompanying speech rang dovish. This perception weighed on the ‘Greenback’ over the rest of the week.

Elsewhere, resurfaced US banking sector anxieties further dented USD. With rate hike bets lowered, above forecast non farm payrolls only provided brief respite for the US Dollar.

Meanwhile, the Pound (GBP) rallied over the course of the week without much in the way of data. However, Thursday’s impressive final service sector reading came in at 54.9.

By showing a strong recovery in the vital sector, investors bet on further tightening from the Bank of England (BoE).

Three Things to Watch Out for This Week

  1. BoE Interest Rate Decision

The BoE are expected to deliver a 25bps hike on Thursday. Could hawkish forward guidance strengthen Sterling?

  1. US Inflation

Wednesday brings the release of the latest US inflation data. Core inflation is forecast to dip, which could dent USD.

  1. UK GDP

First quarter GDP data is due to print on Friday. An expansion of 0.1% is forecast, but the Pound is vulnerable to weakening if growth falls short of expectations.

GBP/USD Outlook

Elsewhere, the latest US PPI data could hold sway over the US Dollar. An increase is forecast of 0.3% in April, which could spark further rate hike bets. However, if banking anxieties continue in America it may do little to sway investors.

John Mulcahey

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