GBP USD Exchange Rate: The Week Ahead July 18th 

GBP USD Exchange Rate Weakens as Investors Seek Safe-Haven Currencies 

In March 2020, the pound fell against the dollar due to draconian lockdown restrictions designed to control the rapid spread of COVID-19. The pound plummeted from 1.30 to 1.16 in a matter of days. 

In recent weeks, the UK currency tested those lows against slowing UK economic growth, decades-high inflation, and the risk of recession. 

Last week, GBP USD extended its losses by notching two fresh lows since March 2020. On Tuesday, the pair lurched into the 1.18 range as the Conservative leadership contest added to uncertainty in an increasingly beleaguered economy. On Thursday, it briefly dipped below 1.18 as another bout of risk aversion prompted haven buying. 

A higher-than-expected US inflation reading raised investor bets on a possible 100 basis points (bps) interest rate hike by the Federal Reserve at its July policy meeting, unnerving markets and supporting the dollar. 

Influential economic data in focus for the pound

Investors will closely watch a flurry of influential data sets from the UK economy this week: 

  • The unemployment rate on Tuesday 
  • The consumer price index on Wednesday 
  • Retail sales, consumer confidence and the services, manufacturing and composite PMIs on Friday. 

Is the beleaguered UK economy resilient enough to eke out more positive figures following last week’s surprise GDP print for May? 

Britain’s unemployment rate – which rose slightly to 3.8% in the three months to April but continues to hover around multi-decade lows –will likely hold steady in the three months to May. 

The UK composite PMI – spanning services and manufacturing businesses – ticked to 53.7 from a preliminary June reading of 53.1. However, economists forecast a fall to 52.5 this month – potentially providing further evidence that the domestic economy is slowing. 

The most eagerly awaited print of the week is the consumer prices report for June. Headline  

UK inflation accelerated to 9.1% – a 40-year record high. If it continues shifting through the gears, it will increase the odds of a 50 bps rate hike at the Bank of England’s next meeting.  

The consensus is for it to hit 9.3% in June. 

Interest rate expectations in focus for the dollar

A lighter economic calendar on the other side of the pond this week means expectations that the Fed will hike borrowing costs by a supersized 100 bps this month could gain traction. 

However, on Friday, two US central bank officials signalled they would likely stick with a 75 bps interest rate increase at their July 26-27 meeting, though larger increases than anticipated could be warranted later in the year to control inflation. 

Investors in the dollar will have several data sets from the US economy in their diary:  

  • Building permits and housing starts on Tuesday 
  • Initial jobless claims on Thursday 
  • Flash PMIs for the services and manufacturing sectors on Friday 
     

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