Pound-Dollar could rebound if US inflation cools, although weaker UK growth may keep Sterling vulnerable after last week’s bond-market turmoil.
Trade in the Pound US Dollar (GBP/USD) exchange rate was volatile last week amid turbulence in the global bond market.
At the time of writing, GBP/USD was trading at around $1.3499. Down around 0.3% from the start of last week’s session.
DAILY RECAP:
The US Dollar (USD) opened last week’s session on strong footing, with the ‘Greenback’ benefiting from a bout of risk aversion as a sell-off in global bond markets spooked investors.
The turmoil in the bond market was driven by renewed concerns over inflation and fiscal sustainability, with surging oil prices adding to fears that central banks could face pressure to keep interest rates higher for longer.
However, the US Dollar began to relinquish its gains in the middle of the week as these fears eased and market risk appetite recovered.
Further losses followed on Thursday after dovish remarks from Federal Reserve policymaker Chris Waller, sparked a repricing of Fed rate hike expectations.
This was followed by a modest rebound in USD exchange rates at the end of the session as US non-farm payrolls smashed expectations in August.
The Pound (GBP) found itself on the defensive throughout much of last week’s session, with the currency bearing the brunt of a widespread rout across international bond markets.
Yields on benchmark 10-year UK gilts broke past 5.25% to briefly trade at a 19-year high, whilst the 30-year yield struck its highest levels since 1997.
While part of a broader worldwide bond slump, the moves hit Sterling especially hard due to fears that spiralling debt servicing obligations will drastically eat into Chancellor John Healey’s fiscal headroom just as he prepares to deliver his inaugural Autumn Budget.
Near-Term GBP/USD Forecast: US Inflation in the Spotlight
Turning to this week’s session, the primary catalyst of movement for the Pound to US Dollar exchange rate will likely be the latest US consumer price index.
If August’s data points to an easing of inflation, it could raise fresh questions about a Fed rate hike this month and pull the US dollar sharply lower.
Meanwhile, the focus for GBP investors will be on the UK’s month-on-month GDP figures for July.
Should the data report a deceleration in growth, it’s likely to place more pressure on the Bank of England (BoE) to maintain a more accommodative monetary policy, pulling Sterling lower in the process.
Our currency coverage draws on live market data, official economic releases and published bank research.
