Pound To Dollar Weekly Forecast: "Momentum Could Push GBP/USD Higher"
The Pound US Dollar (GBP/USD) exchange rate saw choppy trade last week, eventually trending higher as the market mood improved.
Pound Sterling (GBP) found some success at the start of last week’s session despite a lack of economic data. At the time of writing, GBP/USD traded at $1.26375.
Sterling then witnessed choppy trade on Tuesday. Although the UK’s latest jobs report was better than expected, with wage growth accelerating to an eight-month high and the unemployment rate holding steady, Bank of England (BoE) Governor Andrew Bailey brushed off the data and warned of a ‘weak growth environment’.
Despite exceeding expectations, the UK’s consumer price index also failed to boost GBP. Although inflation surged to 3% in January, markets still expect a BoE interest rate cut in May.
Sterling rallied against a weakening US Dollar (USD) in the latter part of the week, thanks to an improving market mood.
Mixed data saw GBP/USD trim its gains on Friday. Although UK retail sales smashed expectations, weaker UK tax receipts raised concerns about possible tax hikes and spending cuts. Additionally, the latest PMIs showed that UK private sector activity was stuck at a near standstill.
The US Dollar was quiet at the start of the week, with American markets closed for the Presidents’ Day federal holiday.
Rising US Treasury yields and a cautious market mood then boosted the USD midweek as the recent hopes for a peace deal between Russia and Ukraine began to fade.
However, the market mood brightened towards the end of the week, with US President Donald Trump hinting that it was ‘possible’ he could agree a trade deal with China. This alleviated fears of a US-China trade war dampening global economic growth.
In addition, higher-than-expected initial jobless claims weighed on USD.
Looking forward, some high-impact US data at the end of the week could drive USD exchange rates.
On Thursday, a forecast recovery in US durable goods orders could boost USD. However, another rise in initial jobless claims could offset the upside.
Meanwhile, the second estimate for US GDP growth in the fourth quarter of 2024 could impact the ‘Greenback’, if it differs from the preliminary result.
The key release, however, may be the core PCE price index on Friday. If the Federal Reserve’s preferred measure of inflation shows easing price pressures in January, USD could weaken. However if it reveals that inflation remains stubbornly high, the US Dollar could soar.
As for the Pound, market-moving UK data is thin on the ground throughout the week. The only notable release is the Confederation of British Industry’s (CBI) distributive trades survey, with a forecast decline in retail volumes potentially pressuring GBP on Tuesday.
GBP/USD Exchange Rate Forecast: Further Gains Possible
UoB analysts see potential for further gains; “Last Thursday, GBP soared and rose to a high of 1.2671.
“On Friday, we indicated that ‘although the rapid rise is deeply overbought, the current impulsive momentum could continue to push GBP higher.’
Our expectation did not materialise as GBP eased off to close at 1.2636 (-0.25%).
We view the current price movements as part of a range trading phase, probably between 1.2625 and 1.2680.”
Adam Solomon
Contributing Analyst
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