Pound US Dollar Weekly Forecast: GBP/USD Fluctuates as BoE Governor Bailey Claims Inflation Set to Fall Sharply

The Pound US Dollar (GBP/USD) exchange rate fluctuated last week, striding to a one-year high before falling back again.

What’s Been Happening: GBP Dented by Dovish BoE Hike

The Pound (GBP) saw some support early in the week, as investors anticipated the Bank of England’s (BoE) latest interest rate decision.

On Thursday, the BoE delivered their expected 25bps hike. While the accompanying report left the door open for further tightening, BoE Governor Andrew Bailey struck a more cautious tone.

Bailey stated the bank expects inflation to fall sharply from April. Resulting in the GBP/USD exchange rate tumbling from a one-year high.

The UK’s latest set of GDP data provided a mixed picture for the UK’s economy. A shock 0.3% contraction in March was of concern and may have weighed on GBP. However, Q1 figures suggested the UK had managed to avoid a recession, which cheered GBP investors.

Meanwhile, the US Dollar (USD) strengthened early in the week. A sour market mood surfaced, amid renewed anxieties over the US banking sector. Similarly, fears over the US’ debt ceiling weighed on risk aversion.

On Wednesday, the latest inflation data gave USD an initial shock. Headline inflation unexpectedly cooled, which dented rate hike bets. However, an uptick in PPI and a souring market mood over to the end of the week countered this.

Three Things to Watch Out for This Week

  1. UK Employment Data

The latest set of unemployment and wage growth data will be in focus for GBP investors this week. With the employment rate expected to hold, and wage growth to increase, the Pound could rise.

  1. US Retail Sales

Retail sales data for April is due on Tuesday. A 0.7% increase is forecast, which may boost USD.

  1. Central Bank Head Speeches

Both BoE Governor Andrew Bailey and Fed Chair Jerome Powell are due to speak this week. If they both take hawkish stances, GBP/USD could fluctuate.

GBP/USD Outlook

Beyond Chair Powell’s speech on Friday, Fed officials are scheduled to speak throughout the week. If they strike hawkish notes, USD could rally on elevated rate hike bets.

John Mulcahey

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