The Pound US Dollar (GBP/USD) exchange rate nosedived last week as market reacted to the latest interest rate decisions from the Bank of England (BoE) and Federal Reserve.
What’s Been Happening: GBP/USD Plummets amid Bruising Week for the Pound
Both the Pound (GBP) and the US Dollar (USD) were trapped in a narrow range at the start of last week. With GBP and USD investors reluctant to make any aggressive moves ahead of the BoE’s and Fed’s interest rate decisions.
GBP/USD the met some resistance in the middle of the week with the publication of the UK’s consumer price index. A weaker-than-expected inflation reading pulled Sterling lower as it upended BoE rate hike expectations.
At the same time, the US Dollar rallied on Wednesday evening after the Fed delivered a ‘hawkish pause’. Leaving rates on hold but signalling it would pursue at least one more rate hike in 2023 and that it would cut rates at a slower pace than previously expected in 2024.
The GBP selloff then accelerated after the BoE surprised markets by also hitting pause on its hiking cycle. With further losses coming at the end of the week, after an abysmal services PMI revived UK recession fears.
Three Things to Watch Out for This Week
- US Core PCE Price Index
In focus for USD investors this week will be the latest core PCE price index. Could a fall in the Fed’s preferred indicator for inflation weaken bets for another hike and pull the US Dollar lower?
- US Durable Goods
Also set to influence the ‘Greenback’ will be the latest US durable goods orders print. Another contraction in order growth may weigh on USD exchange rates on Wednesday.
- UK GDP
GBP data is thin on the ground this week, with the only release of any note being the UK’s latest GDP figures. But barring another revision to second quarter growth, any impact on the Pound may be minimal.
Pound US Dollar Forecast
Elsewhere the GBP/USD exchange rate is likely to remain sensitive to market sentiment. If risk appetite sours its likely the pairing will fall.