The Pound to US Dollar (GBP/USD) exchange rate came within spitting distance of $1.40 last week, with the pairing striking a new five-week high of $1.3981.
US Dollar (USD) Exchange Rates Plummet Following Dovish Fed Decision
The US Dollar (USD) came under some sustained selling pressure through last week’s session, which drove the currency to multi-week lows.
This downturn in USD was driven in the first half of the week by a slump in US Treasury yields, in addition to underwhelming US durable goods orders, which offset safe-haven demand.
However, the USD selloff then accelerated following the conclusion of the Federal Reserve’s latest policy meeting.
This saw the Fed leave its monetary policy untouched, while Fed Chair Jerome Powell struck a notably dovish tone in his accompanying policy statement, in which he suggested the US economy still has some ‘ground to cover’ before the US central bank can consider tapering its bond purchases.
Powell said: ‘I’d say we have some ground to cover on the labor market side. I think we’re some way away from having had substantial further progress toward the maximum employment goal.’
This downside was then reinforced by the latest US GDP release, after US growth in the second quarter came in well below expectations, with the preliminary estimate printing at 6.5% versus forecasts for an 8.5% expansion.
Richard Flynn, UK Director at Charles Schwab, commented: ‘Today’s US GDP data is disappointing, as it was expected to mark the peak for the growth rate. While corporate earnings look strong, concerns of a resurgence of the coronavirus have been building and are reflected in the economy’s performance.
‘Amid the rapid spread of the delta variant and a significant easing in both monetary and fiscal stimulus, investors may have begun to worry about a faster-than-expected economic slowdown.’
Pound (GBP) Exchange Rates Buoyed by Positive Coronavirus Statistics
The Pound (GBP), meanwhile, enjoyed strong support through last week’s session on the back of some upbeat UK coronavirus statistics.
Statistics published in the first half of the week reported that new infections had fallen for seven consecutive days, leading to a 40% drop in new cases versus the previous week.
While cases began to creep higher again by the second half of the week, Sterling sentiment remained buoy be comments from a prominent UK health expert who suggested the ‘bulk of the pandemic’ in the UK could be over by October.
This upside in the Pound was further bolstered by some Brexit optimism, after the EU announced that it had suspended legal action against the UK for violating the Northern Ireland protocol.
An EU spokesperson reportedly told Euronews: ‘In order to provide the necessary space to reflect on these issues and find durable solutions to the implementation of the Protocol, we have decided, at this stage, not to move to the next stage of the infringement procedure.’
Its hoped the move will help to cool tensions between the two sides and open the possibility of a services trade deal in the future.
GBP/USD Exchange Rate Forecast: Dovish BoE to see Sterling Shed Gains?
Turning to this week’s session, the main catalyst in the Pound US Dollar exchange rate looks to be the conclusion of the Bank of England’s August policy meeting.
Much like the Fed, the BoE is not expected to make any alterations to its monetary policy this month, and could force Sterling to relinquish a good portion of the previous week’s gains if the bank also signals that it is still not prepared to begin discussions regarding the tapering of its stimulus programme.
Meanwhile, the primary focus for USD investors this week will be the latest US non-farm payroll figures.
July’s release could provide some support for the US Dollar towards the end of the session, as economists forecast the US economy will have added almost one million jobs last month.