GBP/USD To Spike As Joe Biden Withdraws
Breaking News for USD Markets: Joe Biden withdraws, sparking likely volatility when markets open tonight:
— Joe Biden (@JoeBiden) July 21, 2024
The Pound US Dollar (GBP/USD) closed last week at around $1.2918.
The Pound (GBP) opened last week’s session on a quiet note, as a lack of fresh data prevented any notable movement for Sterling. Elsewhere, dovish commentary from Bank of England policymaker Swati Dhingra prevented GBP from extending its recent rally, as she stated that ‘now is the time’ to begin loosening monetary policy in the UK.
On Tuesday, an ongoing data-lull in the UK saw GBP trade without a clear direction. In addition to this, investors appeared reluctant to place any aggressive bets on the Pound ahead of the UK’s looming inflation release.
GBP then strengthened on Wednesday following the UK’s latest inflation data for the month of June. Headline inflation held steady at 2%, rather than dipping below the BoE’s target rate to 1.9%, as markets had projected. Similarly, core inflation remained unchanged at 2.5%, while sticky services inflation, which printed at 5.7%, saw markets dialling down their expectations of an August interest rate reduction from the BoE.
The release of the UK’s latest employment data on Thursday then saw GBP retreat from its recent highs, as cooling UK wage growth and persistently high unemployment levels pointed to loosening in the UK’s labour market, indicating that the central bank has less scope to defer interest rates than Wednesday’s CPI release may have suggested.
On Friday, a sharper-than-forecast decline in UK retail activity last month then saw GBP extend its recent losses. Retail sales were down by 1.2% in June, missing market expectations of a more modest 0.4% fall. This saw GBP left on the back foot as the week neared an end, with Sterling retreating from its multi-month highs.
US Dollar (USD) Volatile amid Mixed Fed Policy Expectations
The US Dollar (USD) was mixed as Monday’s session opened, as the attempted assassination of US Presidential Candidate Donald Trump sparked volatile trading conditions in the US. As markets continued to price in a September interest rate cut from the a Federal Reserve, the US Dollar struggled to attract support.
Tepid commentary from Fed Chair Jerome Powell on Monday evening then left USD rudderless, before a stronger-than-forecast set of American retail sales data lifted the ‘greenback’ on Tuesday afternoon. While growth stalled in June, an upward revision to May’s release lent USD modest support.
USD continued to soften on Wednesday as Fed rate cut bets stymied any significant movement. In the latter part of the session, however, USD attracted some investor support following the latest after US industrial production data. The release showed a higher-than-expected level of output in June, while May’s figures were also upwardly revised.
On Thursday, the latest initial jobless claims data was released in the US. The data showed a higher-than-expected number of newly unemployed US citizens claiming benefits, pointing to ongoing slack in the US labour market. However, USD was able to resist losses after recovering from a brief period of overselling throughout the week, spurred by exaggerated Fed rate cut bets.
A rise in US Treasury bond yields and a cautious market sentiment further aided the safe-haven US Dollar as the week drew to a close.
Pound US Dollar Exchange Rate Forecast: PMIs in Focus
Looking ahead, the latest preliminary PMIs are due for release mid-week, in both the US and the UK.
A data-light start to the week may see the Pound US Dollar exchange rate trade without a clear direction ahead of the PMI releases, with risk appetite and central bank policy expectations likely to drive movement in the currency pairing.
