The Pound US Dollar (GBP/USD) exchange rate struck a 15-month high last week, as Bank of England (BoE) rate hike bets were buoyed by strong economic data.
What’s Been Happening: USD Nosedives as US Inflation Cools
The Pound (GBP) began the week quietly, as a light data calendar prevented Sterling from finding a clear direction.
However, it quickly accelerated come Tuesday, following May’s jobs report. Wage growth eclipsed forecasts, stoking concerns inflation is becoming entrenched. This prompted tightening bets to climb, allowing GBP to shrug off an increase in unemployment.
At the start of the week, the US Dollar (USD) was wanting for support amid a wavering market mood and lack of data.
Wednesday saw the ‘Greenback’ crater amid a sharp cooldown in the consumer price index. Both core and headline inflation fell to their lowest levels since the pandemic, dampening Federal Reserve interest rate expectations.
May’s GDP data provided further impetus for Sterling, by printing at -0.1% instead of -0.3%. While still a contraction, it suggested some level of resilience and saw GBP/USD punch through to a 15-month high.
Friday saw Sterling consolidate these gains, as a lack of economic releases prevented additional gains.
On the back of the latest Michigan consumer sentiment index, USD managed to claw back some losses as consumer optimism increased.
Three Things to Watch Out for This Week
- UK Inflation
The latest UK data is scheduled for publication on Wednesday. With core inflation forecast to hold at 7.1%, rate hike bets could climb and bring strength to GBP.
- US Retail Sales
Tomorrow morning, US retail sales data for June is scheduled for release. Could a monthly increase boost USD?
- UK Retail Sales
Sterling could strengthen later this week, on the back of a 0.2% increase in retail sales.
GBP/USD Outlook
Elsewhere, GBP/USD is likely to trade on market risk appetite. As a safe-haven currency, a souring market mood could benefit USD.