The Pound-Dollar could face renewed pressure if US inflation strengthens Fed hike bets, while firmer UK growth may help keep Sterling supported.
The Pound US Dollar (GBP/USD) exchange rate was highly volatile last week, as US politics was rocked by a ‘blue tsunami’ in the US midterm elections.
At the time of writing, GBP/USD was trading at around $1.3394. Almost unchanged from the start of last week, but down from a session high of $1.3498.
Pound to Dollar (GBP/USD): 1.335238 (-0.77%)
Dollar to Yen (USD/JPY): 158.49267 (+0.64%)
DAILY RECAP:
The US Dollar (USD) experienced some dramatic swings last week, mostly linked to the results from the US midterm elections.
USD exchange rates initially slumped following the ‘blue tsunami’ in the US midterm elections saw Democrats seize control of both chambers of Congress.
The result raised concerns over potential political gridlock and tighter regulation of the technology sector, and the knock-on impact this may have on US economic growth.
However, the initial market reaction proved relatively short-lived as concerns over the potential consequences of tighter AI regulation intensified, and triggered a sharp tech stock slump that encouraged demand for traditional safe-haven assets, helping the US Dollar recover its earlier losses.
Closing out the week was the publication of the latest US non-farm payroll figures, with the US Dollar able to extend its recovery as a larger-than-expected rise in employment growth bolstered Federal Reserve’s latest interest rate expectations.
The Pound (GBP) was well supported through last week’s session, finding an early tailwind after British and European negotiators hammered out a draft agreement to cut red tape across agri-food supply chains.
GBP investors welcomed the news on hopes that a closer relationship with the EU will provide a meaningful boost for the UK economy.
Sterling sentiment was bolstered further in the wake of the Bank of England’s (BoE) latest interest rate decision.
The Monetary Policy Committee voted by an 8–1 margin to lift rates by 25 basis points to 4.00%, with the sole dissenter calling for an immediate half-point rise.
A hawkish voting split was accompanied by the unexpectedly aggressive tone of the accompanying guidance. Policymakers warned that domestic inflation could reach 5% by mid-2027, and made it clear that additional tightening remains firmly on the agenda in the coming months.
Near-Term GBP/USD Forecast: Rising US Inflation to Boost the ‘Greenback’?
Looking ahead, a key catalyst of movement for the Pound to US Dollar exchange rate this week will be the publication of the latest US consumer price index on Tuesday.
If October’s CPI figures report another acceleration of inflation, it will likely cement bets for a Fed interest rate hike in December and underpin USD demand.
Meanwhile, the focus for GBP investors will be on the UK’s preliminary third-quarter GDP growth figures.
An expected acceleration in economic growth through the summer is likely to validate the BoE’s more hawkish outlook and provide a boost to Sterling in the latter half of the session
Our currency coverage draws on live market data, official economic releases and published bank research.
