The Pound US Dollar (GBP/USD) exchange rate fluctuated last week, as a dovish Federal Reserve interest rate hike dented USD.
What’s Been Happening: Dovish Fed Hike Damages USD
The US Dollar (USD) wavered at the beginning of last week, as initial private sector readings were mixed. While manufacturing exceeded expectations, the vital service sector cooled notably.
Upbeat trade initially weighed on the safe-haven ‘Greenback’ come Tuesday, but better-than-forecast consumer confidence data negated this.
The Fed then took to the stage, delivering an anticipated 25bps rate hike. However, Fed Chair Jerome Powell remained coy over the prospect of further hikes. Markets viewed this as dovish, which triggered a sharp sell-off of USD.
However, the Fed rate hike bets quickly recovered on the back of a surprisingly strong second quarter US GDP reading, allowing the ‘Greenback’ to recover its losses.
Friday saw USD weaken amid some profit taking. This was then compounded by a cooldown in the Fed’s preferred inflation gauge, the core PCE price index.
The Pound (GBP) stumbled out of the gate last week, as dismal private sector indexes showed an economy close to stalling. However, expectations of further tightening from the Bank of England (BoE) kept GBP afloat over the week.
Three Things to Watch Out for This Week
- BoE Interest Rate Decision
On Thursday, the BoE are likely to hike rates by 25bps. While the move is largely priced in, some hawkish forward guidance, could bolster GBP.
- US Non Farm Payrolls
July’s non farm payrolls data is scheduled for release on Friday, and is forecast to show a fall in jobs created. This could weigh heavily on USD.
- US ISM Indexes
Tomorrow and Thursday brings the release of the latest ISM PMIs. With growth in the US private sector forecast to cool, the ‘Greenback’ could see sustained selling pressure this week.
GBP/USD Outlook
Other US labour data is scheduled to release throughout the week, such as June’s JOLTs job openings figure. The number of job vacancies is forecast to have fallen, which may bolster perceptions of a loosening labour market, weighing on USD.