Trade in the Pound US Dollar (GBP/USD) exchange rate was volatile last week, as concerns over the UK’s economic health mounted.
What’s Been Happening: GBP Volatile amid Economic Anxieties
The Pound (GBP) started last week on the defensive, following data from the Confederation of British Industry (CBI) which showed a drop in retail sales.
As the week continued, a minimalistic data slate shifted the focus to the Bank of England’s (BoE) monetary tightening. This was highlighted by comments from BoE Governor Andrew Bailey on Wednesday.
Bailey suggested the BoE would ‘do what is necessary’ to bring inflation under control, stoking concerns overtightening from the bank could tip the UK into a recession.
However, Friday’s confirmation that the UK had avoided a recession over the winter allowed GBP to mount a recovery.
Meanwhile, the US Dollar (USD) saw a slow start, but accelerated following a hawkish speech from Federal Reserve Chair Jerome Powell. As the door was opened for two further hikes, investors rushed to the ‘Greenback’.
Furthermore, a souring market mood over the week brought safe-haven flows to USD, as global recession anxieties increased.
This momentum halted on Friday, however, following a sharper-than-forecast cooldown in the core PCE price index.
Three Things to Watch Out for This Week
- FOMC Minutes
Due Wednesday, the latest FOMC minutes are likely to outline why the Fed enacted a pause. If they hint towards a resumption, USD may strengthen.
- Non Farm Payrolls
Scheduled to print on Friday, June’s non farm payroll figures are forecast to fall sharply from the previous month. Could this fall dent USD?
- Market Sentiment
Owing to a lack of data, the Pound could be left vulnerable to any shifts in risk appetite over the week’s session.
GBP/USD Outlook
Elsewhere, US ISM indexes are due out this week. As the more impactful measure of the private sector, the tepid results expected could weigh on the US Dollar. However, if they surprise to the upside, the ‘Greenback’ could gain ground.