The Pound US Dollar (GBP/USD) exchange rate traded in a wide range last week, as a dovish interest rate hike from the Bank of England (BoE) weighed on Sterling.
What’s Been Happening: GBP Endures Volatile Trade Post BoE Hike
The Pound (GBP) began last week on modest terms as investors bet on further tightening from the Bank of England (BoE).
However, this was tempered on Tuesday amid UK recession jitters. The UK’s final manufacturing index for July confirmed the sharpest slowdown in the sector since July 2020.
Later in the week, the BoE delivered a 25bps rate hike as expected, but accompanied it with dovish forward guidance. This sent GBP/USD to a four-week low, before hawkish comments from BoE Governor Andrew Bailey capped these losses.
On Friday, downbeat economic forecasts weighed on Sterling, but not enough to prevent it from advancing against a weakened US Dollar (USD).
The US Dollar, meanwhile, trended broadly higher last week as it was supported by a downbeat market mood. Although some disappointing US data tempered these gains somewhat in the first half of the session.
A strong ADP employment report extended USD gains on Wednesday as it bolstered Federal Reserve rate hike bets.
However, the US Dollar closed the week on a sour note as US non farm payrolls data printed below expectations.
Three Things to Watch Out for This Week
- UK GDP
On Friday, the latest UK GDP data is scheduled to print. A stalling of the UK economy in the second quarter could weigh heavily on Sterling.
- US Inflation
On Thursday, the latest US consumer price index is expected to report an acceleration of headline inflation. Could this buoy Fed rate hike bets and boost the US Dollar?
- US PPI
Friday brings the release of July’s PPI data, wherein a 0.2% increase is forecast. On the back of previous data, this may further strengthen USD.
GBP/USD Outlook
Market dynamics are likely to drive GBP/USD through the week, as the data calendar looks light ahead of Thursday. A shift to bullish trade could benefit the increasingly risk-sensitive Pound over the ‘Greenback’.