Pound-to-Dollar Forecast: US Payrolls, PMIs And CPI In Focus This Week

The Pound to Dollar (GBP/USD) exchange rate traded in a relatively narrow range last week as shifting expectations surrounding US-Iran peace talks and softer-than-expected US growth data offset support for the US Dollar.

At the time of writing, GBP/USD was trading around $1.3413, little changed from the start of the week.

DAILY RECAP:

The US Dollar (USD) came under pressure at the start of last week as investors welcomed signs that Washington and Tehran may be edging closer to a diplomatic breakthrough.

Sentiment improved after US President Donald Trump suggested a peace agreement with Iran had been “largely negotiated”, reducing demand for the safe-haven US currency.

However, this optimism quickly faded after fresh US military strikes on Iranian targets reignited concerns over the conflict.

The resulting deterioration in risk appetite helped the US Dollar recover through the middle of the week as investors sought the relative safety of the ‘Greenback’.

USD then surrendered much of these gains later in the week after revised US first-quarter GDP figures disappointed expectations.

Growth was revised lower to an annualised 1.6%, down from the initial 2.0% estimate, with weaker consumer spending and softer inventory investment weighing on the outlook.

The weaker growth reading prompted investors to reassess the outlook for the US economy and limited support for the Dollar.

Meanwhile, the Pound (GBP) struggled to establish clear direction throughout the week.

Sterling initially faced subdued trading conditions following the UK bank holiday and received little support from domestic economic releases.

The latest CBI distributive trades survey showed retail sales volumes remained deeply negative in May, highlighting ongoing weakness in consumer spending.

While falling gilt yields offered some support to the Pound by easing concerns over UK borrowing costs, gains proved limited.

Sterling also faced renewed headwinds after a report into youth unemployment warned that rising numbers of young people outside employment, education or training could create significant long-term challenges for the UK economy and public finances.

GBP/USD Forecast: US Payrolls Report Takes Centre Stage

Looking ahead, developments in the Middle East are likely to remain a key driver of sentiment for the Pound to Dollar exchange rate.

Any renewed optimism surrounding peace negotiations could weigh on safe-haven demand for the US Dollar, while escalating tensions may support USD.

Investors will also closely monitor the latest US non-farm payrolls report.

A strong employment reading could reinforce expectations that the Federal Reserve may need to maintain a restrictive policy stance, potentially supporting the Dollar.

For Sterling, the UK economic calendar remains relatively light.

Attention may instead focus on political developments ahead of the Makerfield by-election, particularly if developments trigger renewed volatility in UK bond markets or affect confidence in the government’s fiscal outlook.