The Pound US Dollar (GBP/USD) exchange rate saw volatile trade over the past week, as recession anxieties undermined a bumper 50bps rate hike from the Bank of England (BoE).
What’s Been Happening: GBP Fluctuates amid Increasing Economic Anxieties
At the start of the week, BoE rate hike bets helped to underpin the Pound (GBP), and offset any pressure from a souring market mood.
Sterling then faced a major setback with the release of the UK’s consumer price index on Wednesday. Stronger-than-expected inflation figures turbocharged BoE rate hike bets, however this lead to warnings that higher rates could push the UK into a recession.
This resulted in the Pound fluctuating in the wake of the BoE’s surprise 50bps rate hike on Thursday.
The volatility continued on Friday, as a surprise increase in monthly retail sales was negated by a worse-than-expected slowdown in the private sector.
The US Dollar (USD), meanwhile, gained ground throughout the week as fears of a global recession grew.
This allowed the ‘Greenback’ to swerve a mixed response to Federal Reserve Chair Jerome Powell’s testimony. Powell’s cautious comments left Investors uncertain over whether or not the Fed would resume hikes in July.
Three Things to Watch Out for This Week
- US Core PCE Price Index
On Friday, the latest reading of the Fed’s preferred inflation gauge is due to print. Should this hold at 4.7% as expected, USD could strengthen.
- BoE Speeches
BoE Chief Economist Huw Pill and policymaker Silvana Tenreyro are scheduled to speak this week. Pill’s speech may boost GBP, if he takes a hawkish stance.
- Fed Chair Powell Speech
On Wednesday, Fed Chair Jerome Powell is scheduled to deliver a speech. If he hints at a resumption in rate hikes, USD could climb.
GBP/USD Forecast
Elsewhere, last week’s initial jobless claims data could provide further impetus for the US Dollar this week. As past releases have shown a continual increase, another could cement perceptions of a loosening job market. If this prints accurately, the diminished rate hike bets may weaken the ‘Greenback’.