The Pound US Dollar (GBP/USD) exchange rate soared to a 15-month best last week, as elevated Bank of England (BoE) and a bullish market mood boosted the pairing.
At the time of writing, GBP/USD traded at around US$1.3104, down just over 0.2% from Friday’s opening rates.
Pound (GBP) Exchange Rates Soar amid Escalating BoE Bets
Monday saw the Pound (GBP) soften, as a lack of data releases prevented Sterling from finding a catalyst for movement.
Stronger than forecast wage growth then catapulted the Pound on Tuesday, as investors began to bet on further tightening from the Bank of England. While unemployment may have capped the upside, the Pound continued to climb.
However, these tailwinds did fade modestly midweek, but Sterling remained cushioned by these persistent bets on further tightening from the bank.
On Thursday, the UK’s GDP data for May printed better than expected, coming in at -0.1% instead of -0.3%. While still reflecting a contraction in the economy, the indication of resilience was enough to reaffirm these rate hike bets and keep the Pound marching.
On Friday, however, Sterling moved into a consolidatory mode, as the data calendar turned light once again. GBP was able to retain it’s significant highs against the US Dollar and other peers, but was unable to climb further due to this lack of data.
US Dollar (USD) Exchange Rates Crater as Inflation Hits Two-Year Low
At the beginning of last week, the US Dollar (USD) gained ground due to its safe haven nature. The market mood began on a sour note, though a pullback in US Treasury yields trimmed these gains.
On Tuesday, a wavering market mood prevented USD from finding clear directional trade, alongside investor hesitance ahead of Wednesday’s consumer price index data.
The US Dollar then began to plummet on the back of the latest inflation data. Headline CPI was found to have cooled from 4% to 3%, the lowest reading in over two years. Core inflation cooled similarly sharply, from 5.3% down to 4.8%.
This prompted a massive pullback in bets on further rate hikes from the Federal Reserve , as the need for further tightening appeared to dissipate.
The ‘Greenback’ extended this sell off further into Thursday, sent reeling from a further cooldown in PPI. Because of this, the US Dollar hit a 15 month low.
On Friday, the beleaguered US Dollar managed to gain back some losses, between a muted market mood and an above forecast print in the Michigan consumer sentiment index. July’s data showed a sharp increase in consumer optimism, bringing cheer to USD investors.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: UK CPI in Focus
Looking ahead for the Pound (GBP), Wednesday brings the release of the latest consumer price index data for the UK.
Following continued wage growth, the spotlight is on the inflation figures to nail on a further hike from the Bank of England at their August meeting.
Headline inflation is forecast to cool to 8.2%, while core inflation is forecast to hold at 7.1%. If this is accurate, the Pound may see volatile trade as the need for further tightening becomes clear, but also prompts questions about the UK’s economic health.
On Friday, the latest UK retail sales data is set to be released. Over June, economists are forecasting that sales decreased by 0.2%, which could weigh on GBP.
For the US Dollar (USD), Tuesday brings the publication of the latest US retail sales data, reflecting June’s activity. A 0.5% increase is forecast, which could bring cheer to USD investors by reflecting continued consumer resilience.
However, the remained of the week’s session is set to be lacking in impactful data releases. Because of this, the US Dollar could be left vulnerable to shifts in market mood, and continued analysis of the Federal Reserve’s tightening cycle.
If the market mood improves over the week, the safe haven US Dollar is unlike to enjoy much support. Similarly, if the consensus remains that interest rate cuts are likely soon, the ‘Greenback’ could struggle.