GBP USD Exchange Rate: The Week Ahead April 25th

GBP USD Exchange Rate Plunges to Lowest Since September 2020

The pound was dealt a volley of blows on Friday by downbeat data, causing it to tumble into the 1.28 range against the dollar – its weakest level since October 2020.

Declining high street sales, plunging consumer confidence and rapidly cooling business activity painted a bleak picture of the UK economy – piling pressure on the Bank of England (BoE) to tackle inflation without triggering a recession.

This data-induced slump rounded off a relatively inert week for the GBP USD pair, during which BoE governor Andrew Bailey said he hoped the UK central bank could control inflation without triggering a recession.

However, Bailey cautioned that “it is a narrow path” that must be taken amid the opposing forces of a robust labour market stoking inflation and risks of a recession.

Strong data from the US economy and hawkish comments from Federal Reserve officials last week underscored the contrasting health of the two economies – applying further pressure to the pound.

Dollar performance in focus for the pound

The UK economy was battered by economic data last week. In contrast, it’s a quiet five days ahead for the pound with data limited to CBI Industrial Trend Orders and Nationwide housing prices.

A light UK economic calendar and a lack of speaking engagements from BoE officials – which often provide clues about the future direction of interest rates – mean the dollar’s influence on the pound could be amplified.

Growing expectations that the UK economy will contract in the second quarter and deteriorating risk sentiment – a condition that typically lends support to the safe-haven dollar – could also undermine the pound this week.

Economic data in focus for the dollar

A busy week in the US economic calendar could impact market expectations for three consecutive 50 basis-point interest rate hikes, starting in May – an outlook that was perpetuated by hawkish comments from Fed officials last week.

Core durable goods and consumer confidence figures will be in focus for investors on Tuesday.

On Thursday, investor attention will shift to first quarter GDP, which is forecast to have only grown at an annualised pace of 1% in the first three months of the year. This would mark a steep drop compared with the 6.9% growth pace in the fourth quarter of 2021 and would represent the worst three-month period since the pandemic recession in 2020.

Sky-high US inflation levels not seen in 40 years bring Friday’s expenditure figures into sharp focus for investors in the dollar.