Outlook For Pound To Dollar Exchange Rate

UPDATE GBP/USD 1.13542 (+0.16%): The British Pound to Dollar exchange rate rose overnight following Boris Johnson’s decision to not bid for the Conservative Party Leadership

GBP/USD saw a wide range of trade last week, as positivity in the market was undercut by political instability in the UK.

This saw the exchange rate climb up to US$1.1436 on Monday, drop to US$1.1257 on Tuesday, to Friday’s rate of roughly US$1.1161 at the time of writing.

Pound (GBP) Exchange Rates Endure Volatility amid Further Political Chaos

This week, the Pound (GBP) suffered another week of volatile trade as domestic news continued to rock Sterling.

Monday saw Sterling off to a good start as Chancellor Jeremy Hunt enacted his plan of scrapping the majority of his predecessor’s unfunded tax cuts. This saw both GBP and the UK’s bond yields begin to rally as markets were calmed by the actions.

Tuesday and Wednesday didn’t continue this rally, with Sterling being rocked by growing concerns of political instability in amongst Liz Truss’ premiership. The hotter-than-expected inflation data did little to buoy GBP, as it demonstrated how drastic the cost-of-living crisis has become in the UK.

The effect was expanded upon by Darren Morgan, the ONS Director of Economic Statistics. On Wednesday, he stated: ”After last month’s small fall, headline inflation returned to its high seen earlier in the summer. The rise was driven by further increases across food, which saw its largest annual rise in over 40 years, while hotel prices also increased after falling this time last year.’

Thursday saw the Pound strengthen again following on from Liz Truss’ shock resignation as Prime Minister on Thursday, with a new Conservative leadership race underway.

However, this optimism was undercut on Friday, with poor retail sales data prompting the Pound to dip again.

US Dollar (USD) Exchange Rates Mixed amid Fluctuating Market Mood

For the US Dollar, this week saw a mix of trade as the safe-haven currency was beholden to the market’s mood.

Monday saw the ‘Greenback’ start on the back foot, as the domestic news in the UK prompted a move towards riskier currencies, an attitude that held throughout the beginning of the week. The risk-on trade saw USD trade narrowly, making little gains but also minimal losses against most of its peers.

On Wednesday, the safe-haven currency began to stage a rally as markets began to price in higher rate hikes from the . The ‘Greenback’ proved an attractive prospect as global economic and political news continued to paint a picture of instability.

While USD did waver somewhat, the rest of the week has seen the currency enjoy a trend upwards, with other major economies such as China showing weakness, and turmoil striking other safe-haven currencies such as the Japanese Yen.

The rally was bolstered throughout the end of the week’s trade by Fed policymakers consistently making speeches which pointed towards further rate hikes. As such, the US Dollar enjoyed gains while the markets shied away from risk-appetite.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: UK Politics in Focus

Looking ahead for the Pound US Dollar exchange rate, data is fairly scarce for both pairings. As such, much like the past week, the core catalyst of movement for the pairing may be any continued political instability in the UK.

With next week likely to show the Conservative leadership firmly underway, UK investors will be keeping a keen eye on the main candidates and react accordingly. Should the proceedings go without much of a hitch, GBP may see a modest boost.

For the US Dollar, the key driver of movement may be global market sentiment. Should the global economic outlook continue to sour, the ‘Greenback’ may prosper.