The Pound US Dollar (GBP/USD) exchange rate fluctuated last week in response to the latest UK and US inflation data and shifting risk appetite.
What’s Been Happening: GBP/USD Firms on Falling Fed Bets
The Pound (GBP) initially surged against the US Dollar (USD) last week, hitting a six-week high.
Cooler-than-expected US inflation served to undermine USD, while upbeat UK jobs data lent Sterling some modest support. A spell of cheery trade also pressured the US Dollar on Tuesday, while underpinning the increasingly risk-sensitive Pound.
On Wednesday, GBP retreated as significant cooling in both headline and core UK inflation pared Bank of England (BoE) interest rate hike bets, while investors speculated that the central bank may have reached the end of its hiking cycle.
While GBP slumped, the latest US retail sales data saw the ‘Greenback’ drift higher amid signs of increased consumer spending. However, USD’s upside potential remained limited as post inflation losses weighed heavy on the US Dollar.
The end of the week saw USD slump as bleak manufacturing data caused concerns for the production-heavy economy. Meanwhile, GBP faced headwinds following weaker-than-expected retail sales.
Three Things to Watch Out for This Week
- UK Autumn Statement
The publication of this year’s Autumn Statement may be in focus on Wednesday. Suggestion that a UK recession remains likely could see GBP tumble.
- FOMC Minutes
The publication of minutes from the Fed’s latest policy meeting is due on Tuesday. Any hawkish rhetoric may potentially boost USD.
- PMI Releases
Preliminary PMIs for both the UK and US are due out this week. GBP may slump should November’s data report ongoing contractions in economic activity.
Pound US Dollar Forecast
The Pound US Dollar exchange rate may face volatile trade during a data heavy week. Investors may also look to commentary from policymakers amid key document publications. Confirmation that both the Fed and BoE have reached the end of their tightening cycles may drive GBP/USD volatility.