The Pound US Dollar (GBP/USD) exchange rate climbed over the past seven days. The currency pair was bolstered throughout the week by the appointment of Rishi Sunak as the UK’s new Prime Minister.
A scaling back of Federal Reserve rate hike bets also helped to maintain the pair’s upward momentum. Downbeat confidence figures from the US fueled this speculation, as well as reports regarding the Fed’s forward outlook.
An above-forecast third quarter expansion in the US economy saw GBP/USD climb higher on Thursday.
Pound (GBP) Exchange Rates Bolstered by Appointment of Sunak as New UK PM
The Pound (GBP) benefitted from some political stability over the past seven days. The appointment of Rishi Sunak as the UK’s new Prime Minister restored some confidence in the beleaguered currency.
The optimism in the markets regarding Sunak saw the Pound climb back close to levels seen before Liz Truss’ poorly received mini budget.
The delay of the UK Treasury’s autumn statement put a halt to Sterling’s rally, however. The UK government announced that the reveal of the statement would be delayed from 31 October to 7 November. The move prompted concerns in the markets of further uncertainty in UK fiscal policy.
The delay also weighed on Bank of England (BoE) rate hike bets. With the central bank now have to make a decision without any significant policy information, markets began to bet on a below-forecast rate hike. This weighed on Sterling at week’s end.
US Dollar (USD) Exchange Rates Slide as Markets Pare Back Fed Rate Hike Bets
The US Dollar (USD) slipped over the past seven days amid a week of largely downbeat data releases.
Tuesday saw consumer confidence hit a three-month low in October. The figures added to reports signaling that the Federal Reserve was looking to slow its pace of policy tightening, both of which contributed to the currency’s slip.
Markets continued to price in a slowdown in the Fed’s rate of policy tightening kept USD on the defensive.
On the other hand, Thursday’s above-forecast third quarter expansion in the US economy saw the US Dollar recover some of its losses. A rise in net trade provided the boost to the economy.
Friday’s reading of the core PCE price index, the Fed’s preferred measure of inflation, climbed to 5.1% in September. The figures helped USD to edge higher amid the recovery of some certainty in rate hike from the Fed.
GBP/USD Exchange Rate Forecast: Will Fed and BoE Hike Rates as Forecast?
Looking to the coming week for the Pound, the Bank of England’s interest rate decision on Thursday will be the primary focus for the currency. The interest rate hike is currently forecast at 0.75% although there is increasing speculation that the BoE could act more cautiously. A below-forecast rate hike could see Sterling tumble.
Thursday’s final reading of the October PMI for the services sector could also weigh on GBP. If figures print as forecast, the UK’s services sector is set to see output fall even further.
The US Dollar is set several crucial data releases in the coming week. The Fed’s interest rate decision on Wednesday could bolster USD if they push ahead with a forecast 0.75% rate hike. Like the BoE, there is speculation that the Fed could be looking to slow its pace of policy tightening. A more cautious hike could dent enthusiasm for the currency.
Next week will also see several employment data releases for the US Dollar. A drop in Tuesday’s Jolts job openings figures and Friday’s non farm payrolls could push the currency higher if investors take it as evidence of a tight labor market.
Also next week, the latest ISM PMI figures for October could help to limit any losses for USD if they print as expected. Output across all private sectors is forecast to have expanded in October.
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