At the time of writing GBP/USD was trading at around $1.2941, up roughly 0.2% from Monday’s opening rate.
The Pound (GBP) treaded water against the majority of its peers on Monday as domestic data was thin on the ground, leaving GBP exchange rates struggling to find a clear direction.
However, undermining Sterling sentiment on Monday was the latest commentary from new UK Chancellor Rachel Reeves on the possibility of an above-inflation pay rise for the public sector.
Reeves said: ‘At the moment, we are looking at these pay review body recommendations, doing the analysis. We will work with public sector workers on that. And later this month we will make announcements around public sector pay when we do that full analysis of the public finances and public spending. But we also know that there is a cost to not settling – a cost of further industrial action, a cost in terms of the challenge that we face in recruiting and retaining doctors and nurses and teachers as well. But we’ll do it in a proper way. Make sure that the sums add up.’
Independent analysis from the Institute for Fiscal Studies (IFS) cited a potential 5.5% pay rise across the public sector would cost the government £10bn.
This left investors apprehensive on the pressure this could place on government finances, ultimately keeping GBP rangebound.
US Dollar (USD) Undermined by Political Jitters
The US Dollar (USD) struggled to garner investor attention on Monday amid a data-light calendar and confirmation that President Joe Biden withdrew from the 2024 presidential race.
As Biden’s withdrawal was somewhat expected, markets had a mostly subdued reaction the President’s decision.
USD investors were also likely reluctant to place any aggressive bets ahead of some high impact data, expected later in the week.
GBP/USD Exchange Rate Forecast: US GDP in Focus
Looking ahead, the primary catalyst of movement for the Pound US Dollar exchange rate this week will likely be the publication of the latest US GDP figure.
Scheduled for release on Thursday, 2024’s second quarter estimate is forecast to increase from 1.4% up to 2% for this reading.
Should the latest data confirm that the US economy grew faster than anticipated, this could see the Federal Reserve keep interest rates higher for longer, and therefore support the ‘Greenback’.
Before that, on Wednesday, both the UK and the US will release their preliminary PMIs for July.
Looking at the US, an uptick in both the services and manufacturing indices will likely support USD before the publication of its GDP rate.
Turning to the Pound, similarly, will a forecast rise in both the services and manufacturing sectors underpin GBP during mid-week trade?
