Best GBP to USD Exchange Rate Soars Amidst Fed Decision
Upbeat employment data and strong economic growth supported the Pound (GBP), leading to a 14-month high for the currency pair.
US Dollar (USD) Dented as Fed Maintains Interest Rates
Despite widespread anticipation of a pause in interest rate hikes, the market faced the best GBP to USD exchange rate last week. The US government’s budget deficit, which exceeded expectations, may have dampened optimism for the Greenback. In addition, inflation in the US fell short of expectations, contributing to the downward pressure on the currency.
Although the US Dollar briefly strengthened midweek due to expectations of Federal Reserve hawkishness driven by persistent price pressures, the central bank’s decision to keep interest rates on hold in both June and July disappointed investors. While the Fed did hint at future rate increases, the impact was limited.
Mixed US data on Thursday, with an increase in retail sales offset by a rise in initial jobless claims and a decrease in industrial production, further contributed to the decline of the US Dollar.
Pound (GBP) Climbs on Positive Data and BoE Optimism
The Pound (GBP) gained strength against most major currencies, including the US Dollar. Meanwhile, economists continue to anticipate a hawkish stance from the Bank of England (BoE). Upbeat data, such as a drop in the UK’s April unemployment rate, higher job additions in March, and increased wages, signaled a robust labor market and supported the Pound.
While GBP/USD initially stalled at the start of the week due to a lack of UK data, hawkish comments from BoE policymaker Jonathan Haskel provided some support. The exchange rate then climbed as favorable UK economic indicators, including GDP growth of 0.2% in April, met expectations. However, the Pound softened overnight as attention turned to US central bank developments.
The Bank of England’s interest rate decision will take center stage this week. Should the BoE remain committed to its hawkish approach, there is a possibility for the GBP/USD exchange rate to sustain its upward trend. However, it is worth noting that market participants have already factored in multiple rate hikes for the year. Therefore, if UK inflation data appears weaker than anticipated, it could moderate bullish sentiments and potentially trigger a corrective move.
The US Dollar may be influenced by multiple speeches from Federal Reserve officials scheduled for this week. An optimistic tone from Fed Chairman Jerome Powell could help the Greenback recover some of its losses.
Short-Term Strength of GBP/USD and Potential Challenges Ahead
The long-term GBP/USD forecast remains positive, with the next target level at 1.2900, according to strategists at UOB. The recent strengthening of the Pound suggests a promising trajectory for the currency pair in the coming weeks. However, support levels should be closely monitored, as a drop below 1.2630 could signal a reversal in the upward trend.
The GBP/USD’s upward momentum last week surprised some bullish speculators. The currency pair reached levels not seen since April 2022. Factually, the market expected the US Federal Reserve’s decision to pause interest rate hikes. However, the upcoming UK inflation data and the Bank of England’s monetary policy summary will be crucial in shaping market sentiment.
Traders should be cautious of potential reversals and closely monitor key data and policy developments. The 100 USD to GBP may face further volatility based on the US Consumer Price Index data and the Bank of England’s stance on inflation and recessionary pressures.
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