The GBP/USD exchange rate experienced a significant surge last week, reaching its highest level since April 2022. This spike was driven by dovish signals from the Federal Reserve, which fueled optimism among investors. As the week progressed, various economic factors continued to influence the Pound to Dollar outlook, with a notable impact from UK and US economic data.
At the start of last week, the Pound (GBP) faced some challenges. Despite a wave of positive data from the UK in the previous week, investors were still cautious. Many anticipated an interest rate cut from the Bank of England (BoE) in September, which contributed to the Pound's initial sluggish performance. However, as the week unfolded, the Pound began to recover, supported by the UK's robust economic growth in the first half of 2024 and the stability provided by the new Labour government.
As the week progressed, Sterling maintained its positive momentum. Even with the news of higher-than-expected UK government borrowing in July, which raised concerns about potential tax increases, the Pound continued to climb. The release of August’s preliminary PMIs added further support. These figures indicated a stronger-than-expected expansion in both the manufacturing and services sectors, bolstering investor confidence. Additionally, persistent inflation in the services sector made it less likely that the BoE would pursue back-to-back rate cuts in September.
The rally in the Pound accelerated as the week drew to a close. Thomas Pugh, an economist at RSM UK, noted that the latest PMIs suggest the BoE's Monetary Policy Committee might delay further interest rate cuts until November. This sentiment, coupled with signs of economic growth and continued hiring, provided further support for the Pound.
As we move into this week, the focus will shift to the US core PCE price index. This key indicator of inflation could influence the GBP/USD exchange rate. If the data shows a decline, it may strengthen expectations for a US interest rate cut in September, potentially weakening the US Dollar. Additionally, the release of US durable goods orders data could provide some early-week support for the US Dollar if it shows a sharp rebound in July.
The GBP/USD exchange rate remains a focal point for investors, with both UK and US economic data playing crucial roles in its fluctuations. While the Pound to Dollar outlook has shown resilience in the face of various challenges, upcoming data releases, particularly from the US, will likely determine its trajectory in the near term.
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Explore the latest Pound to Dollar outlook as the GBP/USD exchange rate rallies on dovish signals from the Federal Reserve.
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