GBP USD Exchange Rate: The Week Ahead November 22nd

GBP USD Weighed Down by Omicron-Fuelled Rate Concerns

The pound remained supported on Friday morning having touched a one week high (1.3512) against the dollar the previous day. Official data showing early Christmas shopping helped UK retail sales to rebound last month came hot on the heels of news that UK employment rose between September and October despite the end of the furlough scheme – reinforcing the case for the Bank of England (BoE) to raise interest rates as early as next month to rein in inflation.

GBP USD hit a speed bump on Friday as news that Austria is reimposing a full lockdown amid surging Covid-19 infections and Germany could follow suit, created a risk-off mood in markets – conditions that caused investors to flock to the safe-haven dollar, dragging the GBP USD rate down to the 1.34 mid-range, where it settled for the weekend.

Brexit negotiations resume following another stalemate

The pound enters the new week with wind in its sails created by heightened expectations for a BoE rate hike in December and last week’s stronger-than-expected data releases.

Economic data is thin on the ground in the UK this week. The only releases of note arrive on Tuesday when the purchasing managers’ index (PMI) for both the manufacturing and services sectors hit the headlines.

The PMI for the UK’s dominant services sector – published by both the Chartered Institute of Purchasing and Supply and Markit Economics – is forecast to trend marginally lower as the post-pandemic rebound normalises.

Could the pound’s recent progress be blunted by lingering Brexit concerns after talks ended in a stalemate once again on Friday? Negotiations to resolve the issues in the Northern Ireland Protocol – the deal the EU and UK agreed to avoid a hardening of the Irish land border – resume today as the tense dispute over post-Brexit trade rumbles on.

On Friday, Brexit Minister Lord Frost warned: “significant gaps remain across most issues” and said a “significant change from the current situation” is required.

FOMC meeting minutes in focus for dollar

The US economic calendar is condensed by the Thanksgiving holiday later this week. A raft of influential data sets are scheduled for publication on Tuesday and Wednesday, including: the Markit services PMI, durable goods orders, and gross domestic product.

On Wednesday the Federal Open Market Committee (FOMC) meeting minutes are released – a detailed record of what was discussed during the gathering of US monetary policymakers on 2-3 November.

During its November meeting, the FOMC fired the starting gun to taper the Federal Reserve’s $120 billion per month bond-buying programme. In the press conference that followed, Fed chair Jerome Powell pushed back on expectations of an interest rate hike. However, with inflation hotting up, investors are eager for any clues about when policy tightening may take place.

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