The Pound US Dollar (GBP/USD) exchange rate slipped last week, as the UK’s latest GDP data disappointed investors.
What’s Been Happening: Pound Rocked by Underwhelming GDP Data
The Pound (GBP) began the week on unsteady ground, as risk appetite waned. Ongoing tensions in the Middle East weighed heavily on the market mood, prompting the increasingly risk-sensitive Sterling to falter.
Sentiment weakened further following the release of September’s UK GDP data. While it showed a 0.2% expansion, this wasn’t a firm enough recovery from August’s 0.6% contraction to cheer investors.
Ongoing recession concerns weighed on Sterling through to the end of the week. However, Friday saw Sterling earn some support as investors bet on further tightening from the Bank of England (BoE).
Meanwhile, the US Dollar (USD) began the week on a similarly poor note. A litany of speeches from Federal Reserve officials left the outlook unclear, with notable hawks turning dovish.
Following recent spikes in US Treasury bond yields, Fed official Lorie Logan suggested that this may reduce the need for further hikes.
The latest US inflation data printed above expectations on Thursday, with headline inflation holding at 3.7% in September. This generated renewed hike bets, strengthening the ‘Greenback’.
These bets, in tandem with a souring market mood, extended USD gains through to the end of the week.
Three Things to Watch Out for This Week
- UK Inflation
Wednesday brings the UK’s latest consumer price index data with economists expecting a cooldown in both core and headline inflation. Signs of easing inflation could dent the Pound.
- UK Wage Growth
Due Tuesday, August’s wage growth data is forecast to have held at 7.8%. This could spark rate hike bets and bolster Sterling.
- US Fed Chair Powell Speech
Federal Reserve Chair Jerome Powell is scheduled to speak on Thursday evening. If he strikes a hawkish tone, USD could rally.
Pound US Dollar Forecast
Both UK and US retail sales data is due for release this week and may bring renewed volatility to GBP/USD rates. On Friday, September’s UK data is expected to show a 0.1% decrease in retail sales, which may weaken Sterling.