The Pound US Dollar (GBP/USD) exchange rate fell to a six-month low last week, amid a grim market mood.
What’s Been Happening: Pound Whipsaws as Risk Appetite Shifts
The Pound (GBP) began the week on a bleak note, amid a cautious market mood. Leaving the increasingly risk-sensitive currency unable to find solid footing.
Data releases were in short supply for most of the week, keeping the focus on the UK’s economic outlook. Financial firms published forecasts which indicated long-term stagnation, and a likely end to the Bank of England’s (BoE) tightening cycle.
Investors continued to pare back BoE hike bets through mid-week trade, leaving Sterling to flounder.
An upward revision to UK first quarter growth offered some solace to Sterling toward the end of the week, but warnings of a possible UK recession kept these gains in check.
Meanwhile, the US Dollar (USD) rallied for most of the week. The souring market mood sent safe-haven flows towards the ‘Greenback’, pushing it to ten-month highs against its peers.
Ahead of Friday’s core PCE price index, USD began to stumble as the market mood improved.
It then endured additional selling pressure, as the Federal Reserve’s preferred inflation gauge cooled to a two-year low. However, USD rebounded and closed the week strongly as risk-off trade returned.
Three Things to Watch Out for This Week
1. US Labour Data
Jobs data is scheduled to print throughout the week, with most readings expected to show slowdown in the labour market. Will this weaken Fed rate hike bets and drag on USD?
2. US ISM Service Index
September’s ISM Services PMI could infuse fresh volatility into the US Dollar, if it slows as forecast.
3. UK Final Services Index
On Wednesday, the final reading of the UK’s service index is due. Confirmation of further weakness could dent GBP.
Pound US Dollar Forecast
Elsewhere, the GBP/USD exchange rate is likely to remain sensitive to market risk-sentiment. Expect to see the pairing come under pressure if a cautious mood prevails.