Pound To Dollar Week-Ahead Forecast: Fed Minutes Could Revive Dollar Strength

The Pound-Dollar rate could remain volatile as Fed minutes test rate expectations, while Sterling lacks major domestic catalysts this week.

Trade in the Pound US Dollar (GBP/USD) exchange rate was volatile last week amid shifting market sentiment and a dramatic repricing of Federal Reserve interest rate expectations.

At the time of writing, GBP/USD was trading at around $1.3226. Almost unchanged from the start of last week’s session.

DAILY RECAP:

Trade in the US Dollar (USD) was a little more mixed last week, with the currency’s recent bullish run being tested by a repricing of Federal Reserve rate hike bets.

Supporting the safe-haven currency were elevated energy prices and ongoing geopolitical uncertainty as US President Donald Trump rejected a proposal from Iran to reopen the Strait of Hormuz.

But the US Dollar struggled to consolidate these gains as the probability of the Fed delivering another 25-basis-point hike in October fell from around 70% to roughly 37% during the course of the session, following dovish remarks from New York Fed President John Williams, and a weaker-than-expected core PCE price index.

Closing out the week was the publication of the latest US non-farm payroll report, with the US Dollar facing more notable pressure as much weaker-than-expected employment growth was seen as the final nail in the coffin for an October hike.

While the Pound (GBP) wobbled against the US Dollar, it accelerated against the majority of its other peers last week as it was underpinned by a propelled by an encouraging upgrade to domestic growth as well as a potential radical rethink of the UK’s relationship with the EU.

Initial support followed a revision to UK second quarter GDP, which was revised up from 0.4% to 0.5% by the Office for National Statistics (ONS) and bolstered confidence that the Bank of England (BoE) will hike interest rates by the end of the year.

These gains were then built on by Prime Minister Andy Burnham, who branded Brexit as a failure and suggested the UK needed to be more ambitious in its relationship with the EU.

In outlining potential paths for a comprehensive diplomatic reset, Burnham suggested that everything remained on the table, explicitly floating the prospect of the UK eventually seeking full re-entry into the bloc.

Near-Term GBP/USD Forecast: Hawkish Fed Minutes May Revive Fed Rate Hike Bets

Turning to this week, a key catalyst of movement for the Pound to US Dollar exchange rate will likely be the publication of the minutes from the Fed’s policy meeting in September.

USD investors will scour the minutes as the seek to gauge policymakers’ appetite for further tightening, with the ‘Greenback’ likely to surge if they revive bets for a rate hike later in the month.

Meanwhile, with little in the way of UK macroeconomic data, Sterling will have few home-grown catalysts to work with, leaving its trajectory largely at the mercy of global risk flows.

Our currency coverage draws on live market data, official economic releases and published bank research.