Pound-Dollar could extend its recovery if US labour market data weakens further, although stronger ISM surveys may help steady the Greenback.
The Pound to US Dollar (GBP/USD) exchange rate climbed to a 15-day high last week as investors scaled back Federal Reserve rate hike expectations following softer US economic data and the latest central bank decisions.
At the time of writing, GBP/USD was trading around $1.3483, up approximately 1% over the week.
WEEKLY RECAP:
The US Dollar (USD) opened the week on a firm footing as a cautious market mood boosted demand for the safe-haven currency.
Trading remained subdued until Wednesday evening, when the Federal Reserve left interest rates unchanged by a 9-3 vote and adopted a broadly neutral tone.
Following the decision, markets pared back expectations for further Fed interest rate hikes this year, triggering broad-based US Dollar weakness.
Selling pressure intensified on Thursday after second-quarter US GDP growth slowed to 1.5%, missing expectations and decelerating from 2.1% in the first quarter.
At the same time, the latest core PCE price index suggested inflation cooled modestly in June, adding to expectations that the Fed may be in no hurry to tighten policy further.
An improving market mood also kept the safe-haven US Dollar under pressure into the end of the week.
Meanwhile, the Pound (GBP) traded without clear direction during the first half of the week ahead of the Bank of England’s policy decision.
The BoE announcement provided modest support for Sterling, although gains were uneven as investors assessed the voting split and Governor Andrew Bailey’s comments.
Policymaker Catherine Mann joined two colleagues in voting for an interest rate increase after previously supporting unchanged policy, while Bailey reiterated there was little evidence that inflation was becoming entrenched in the UK economy.
After a soft start on Friday, Sterling recovered after Chancellor John Healey confirmed the date of the Autumn Budget and reiterated the government’s commitment to maintaining its fiscal rules, helping reassure investors.
Near-Term GBP/USD Forecast: Non-Farm Payrolls Report in Focus
Looking ahead, the US ISM manufacturing and services PMIs on Monday and Wednesday are expected to provide the first major clues on the health of the US economy.
If both surveys point to improving business activity, the US Dollar could regain some support.
However, the week’s key release will be Friday’s US non-farm payrolls report.
A stronger-than-expected increase in employment could revive support for the Greenback, although any further rise in the unemployment rate may offset the positive impact.
Meanwhile, the UK’s final services PMI on Wednesday is the main domestic release for Sterling. Confirmation that the UK’s dominant services sector returned to growth in July could provide additional support for the Pound.
Our currency coverage draws on live market data, official economic releases and published bank research.
