The Pound US Dollar (GBP/USD) exchange rate trended higher last week, as bets on hawkish action from the Bank of England (BoE) lifted GBP.
What’s Been Happening: Central Bank Divergence Favours Sterling
At the start of the week, the Pound (GBP) edged higher following an uptick in the UK service sector. The finalised print came in higher than the preliminary estimate, bringing support to Sterling.
However, this was dampened by dour sales data from the British Retail Consortium (BRC). Sales were found to have increased less in the year to May 2023.
GBP was able to bounce back though as bets on additional tightening from the BoE continued to climb. Markets now firmly expect 100bps of additional rate hikes, allowing Sterling to gain modest ground against its peers.
This continued through to Friday, wherein a wavering market mood also brought intermittent support to Sterling.
Meanwhile, the US Dollar (USD) saw wavering support over the week, amid readjusted bets on tightening from the Federal Reserve.
Economic releases such as the ISM services PMI disappointed, while analysts grew more certain of a rate pause from the Fed this month. Because of this, the ‘Greenback’ was unable to gain firm ground.
Three Things to Watch Out for This Week
- Fed Interest Rate Decision
On Wednesday, the Fed’s latest interest rate decision is due to be published. A pause is expected, which may weigh on USD.
- UK GDP
Wednesday sees the latest UK GDP release, wherein a 0.2% expansion is forecast. This could bring cheer to GBP investors.
- US Inflation
On Tuesday, the latest consumer price index for America is due to print. A cooldown to 4.1% is forecast, which may diminish rate hike bets.
GBP/USD Outlook
Elsewhere, the latest UK wage growth data could provide some direction for the pairing. An increase is forecast in April, which may prompt elevated rate hike bets and boost Sterling. On the other hand, US retail data is due to print on Friday, which could dent the ‘Greenback’ if sales have slipped as forecast.