GBP Trades Near Five-Month Low

The Pound to US Dollar (GBP/USD) exchange rate traded in a wide range last week as an inflow of both UK and US data releases coupled with escalating tensions in the Middle East saw the currency pairing fluctuate.

At the time of writing the GBP/USD was trading at around $1.2450, virtually unchanged from Friday’s opening levels.

The US Dollar (USD) started the week firming against the majority of its peers as tensions escalated in the Middle East following reports of a drone strike from Iran onto Israel.

The ‘greenback’ was then able to tick higher in the afternoon following the publication of stronger-than-expected US retail sales data. March’s data came in at 0.7%, well ahead of a more modest 0.3% prediction.

On Tuesday, USD held strong and traded near a five-month high against many of its counterparts as an anxious market mood kept the safe-haven currency afloat.

However, on Wednesday, the US Dollar faced resistance as there was a modest pullback in US Treasury yields.

On Thursday, better-than-forecast US jobless claims supported the ‘Greenback’, as they printed in line with last month figures and came in below market expectations.

Moving into the end of the week, USD exchange rates enjoyed some modest support as markets retuned to jittery trading conditions.

Following reports that Israel enacted a drone and missile attack on the Iranian city of Isfahan, escalation in the conflict in the Middle East sapped the market mood, underpinning the safe-haven currency.

Pound (GBP) Mixed amid Ongoing Rate Cut Bets

The Pound (GBP) began the week trading mostly flat against the majority of its peers following the publication of the UK’s latest jobs data on Tuesday, which showed a jump in unemployment.

In February, the unemployment rate increased to 4.2% from an upwardly revised 4% reading in January. Furthermore, wage growth cooled in the three months leading up to February, with the reading printing at 6%, down from a previous 6.1%.

Both figures served to undermined Sterling sentiment on Tuesday on the back of increasing bets that the Bank of England (BoE) will cut interest rates in the summer.

On Wednesday, the pound enjoyed some modest support following the publication of latest UK Consumer Price Index (CPI).

Both headline and core inflation levels cooled less-than-expected for March’s reading, as headline inflation fell from 3.4% to 3.2% rather than an expected 3.1%, whilst core inflation dipped from 4.5% to 4.2% rather than 4.1% as predicted.

As inflation was seemingly sticker than previously expected, experts reduced their BoE rate cut bets from June to August, ultimately supporting the pound in mid-week trade.

The pound closed the week firming against the majority of its peers despite the release of underwhelming UK retail sales figures.

The Office for National Statistics (ONS) reported that UK retail sales stagnated in March, following an upwardly revised 0.1% reading the month prior, and missed market expectations that they would increase to 0.3%.

As consumer spending stalled in the first quarter, concerns that the UK’s post-recession rebound may not be as strong as previously hoped wasn’t enough to hobble GBP exchange rates, as Sterling managed to attract modest support at the end of the week.

GBP/USD Exchange Rate Forecast: Inflow of US Data to Drive Movement?

Looking ahead, the primary driver of movement for the Pound <a href=”https://www.exchangerates.org.uk/US-Dollar-USD-currency-table.html”>US Dollar</a> exchange rate this week is likely to be an array of US macroeconomic data.

On Tuesday, the US will release its latest S&P Global manufacturing and services PMIs. With both sets of data expected to have slightly ticked up, USD may catch bids early this week.

Moving into Wednesday, the latest domestic durable goods orders are forecast to plummet from 1.4% down to -1.2%. Should the data print as expected, this could undermine the ‘Greenback’ in mid-week trade.

On Thursday, the latest US GDP data for the first quarter of 2024 is also expected to show a large downturn which may see USD exchange rates weaken.

Moving into Friday, the latest core PCE price index is forecast to decrease from 2.8% to 2.7%. As the Federal Reserve preferred gauge on inflation, should the results print as expected, this could infuse volatility in USD exchange rates.

Turning to the Pound, a data-light week may mean that Sterling struggles to find a clear trajectory for the majority of the week, which could leave GBP exchange rates vulnerable to the ever-shifting market mood.

The only data release of note this week will come in the form of the UK’s latest flash manufacturing and services PMIs for April.

Should the data report that UK private sector growth began to accelerate again this month, this may lift GBP exchange rates in the early stages of next week.