Sat. Mar 25th, 2023

The Pound US Dollar (GBP/USD) exchange rate traded widely over the past week, with both sides of the pairing subject to poor economic data releases.
At the time of writing, GBP/USD traded at US$1.2037, which while up around 1.1% from Friday’s opening rates, showed little movement from the week’s beginning rates.
The Pound (GBP) began the week on the backfoot, as the International Monetary Fund (IMF) predicted that a third of the world would enter recession. Furthermore, Economists from the Financial Times predicted that the UK’s recession would be the worst and longest out of all the G7 territories.
Tuesday saw the Pound continue to see mixed trade, as thin trading conditions led investors to focus on domestic headlines across the UK. Industrial action continued to intensify across the UK, with fresh walkouts announced for transportation workers.
Thursday brought further negative trade, as the UK’s service sector PMI was revised lower, printing in contractionary territory. However, optimism from UK retailers served to cushion Sterling from substantial losses.
Friday saw the Pound make modest gains despite house prices beginning to drop further, which heightened recession concerns among investors.
The US Dollar (USD) traded in a mixed capacity over the past week, as a fluctuating market mood and mixed economic data served to keep the ‘Greenback’ in flux.
bannerAt the beginning of the week, the US Dollar began on strong footing, climbing over 1% over many peers during the year’s first day of trade. However, safe-haven US Dollar came under heavy selling pressure during a risk-on market mood on Wednesday, with markets appearing upbeat during the sessions. This was then countered by a JOLTS data release which came in above forecast, and pointed to a tight labour market.
Wednesday saw investors reacting to the release of the latest Federal Open Market Committee (FOMC) minutes, which largely confirmed the existing view that interest rates were likely to stay higher for longer. However, with the Federal Reserve also stating a desire to remain flexible, the ‘Greenback’s gains were capped.
Yet, further employment data showed that the private sector had created more jobs than initially expected, sending the US Dollar upwards.
Friday saw the US Dollar begin on decent ground, due to a tepid market mood. However, the afternoon’s non-manufacturing PMI sent the ‘Greenback’ back downward, as it pointed to the first contraction in the services sector for 30 months.
Looking ahead for the upcoming week, trading conditions for both sides of the pairing are likely to be thin on the ground until the end of the week.
On Thursday, inflation data for the US is due to print. December’s data is forecast to show a fall in headline and core inflation year on year, with headline falling from 7.1% and core from 6% to 5.7%. As such, this may prompt weakness in the US Dollar by showing that inflation is continuing to fall, which may lead the Federal Reserve to slow the pace of tightening. Because of this, investor bets for further rate hikes or a long period of high rates may diminish which may lead to a fall for USD.
For the Pound, the key data release comes on Friday, wherein the GDP data for November is expected. The month on month data is forecast to show a fall from 0.5% to -0.3%, and if this prints as expected, Sterling my slip as the UK’s economic situation takes another blow.
Elsewhere, risk-appetite throughout the week may be a key driver for the GBP/USD exchange rate. With the Pound becoming an increasingly risk-sensitive currency, an upbeat market mood could lift Sterling against safer peers. However, a shift to risk-averse trade would likely boost the safe-haven ‘Greenback.’

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Adam Solomon
Adam has almost a decade of experience working in one of the UK’s leading currency brokers and has been…
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