ExchangeRates.org.uk - At the time of writing GBP/USD was trading at around $1.2529, down roughly 0.4% from Friday’s opening levels.The US Dollar (USD) began the week levelling out after ‘Trump Trade’ began to fade before firming against its peers on Tuesday thanks to risk-off flows.
During mid-week trade, a cautious market mood continued to underpin the safe-haven US Dollar as tensions in Russia and Ukraine saw investors opt for safer assets.
On Thursday, the ‘Greenback’ traded without a clear trajectory as a lack of economic data releases undermined USD exchange rates.
At the end of the week, the US’s latest services PMIs came in well above forecast which bolstered the ‘greenback’ on Friday.
The Pound (GBP) started the week on the back foot, sliding against most currencies as Donald Trump's proposed tariffs sparked concern.
However, on Tuesday, the Pound wavered, with investors awaiting major data releases due the following day.
Wednesday brought an unexpected inflation surge, according to the UK's latest consumer price index (CPI).
This buoyed Sterling as Bank of England (BoE) interest rate cut expectations receded.
Thursday saw a reversal of fortune for the Pound after the Office for National Statistics (ONS) reported higher-than-expected UK public borrowing in October.
Friday's market action was driven the UK's latest retail sales figures and the latest PMI indices.
Retail sales data showed a 0.7% decline rather than a 0.3% increase, while PMI data reported a muted reading, sapping GBP demand.
GBP/USD Exchange Rate Forecast: High Impact Data to Drive Movement
Looking forward, the Pound's next data release arrives on Tuesday in the shape of the UK's latest CBI distributive trades survey.
Will another monthly decline spell trouble for GBP exchange rates?
With scarce domestic data releases beyond that, GBP may be guided by broader market risk appetite, with a shift towards a more positive market outlook potentially bolstering Sterling.
Turning to the US Dollar, Tuesday will see the publication of the Federal Reserve’s latest FOMC minutes which could infuse volatility into USD exchange rates at the start of the week.
Looking at Wednesday, the US will publish its latest durable goods orders, GDP data, initial jobless claims and the latest CORE PCE price index which could all rock the ‘Greenback’ during mid-week trade.
The rest of the week will be data absent which will likely see USD exchange rates close the week trading in line with market appetite for risk.
ING considers that policies under a Trump Administration will be crucial in underpinning the dollar.The Pound to Dollar (GBP/USD) exchange rate has already retreated to 4-Month lows below 1.2650 and ING expects the UK will not be a major target of US trade policies.
Nevertheless, it expects overall dollar strength will push GBP/USD to 1.24 on a 12-month view
Republicans have gained control of the Senate and House, boosting the chances of securing approval for the Trump agenda, although the House majority is very small.
Overall, ING expects the policies of lower taxes, deregulation and protectionism will boost the dollar.
The US currency is likely to gain support from an early end to Fed rate cuts while other currencies will be hurt by US trade policies.
ING considers that the UK economy will not be a major casualty of US policies, especially as the UK runs a trade deficit with the US.
Domestically, ING sees limited Pound support from the latest budget and notes that there has not been a major adverse reaction in the bond market.
The bank does have some concerns that the Bank of England will sanction a more aggressive monetary policy next year with the base rate cut to 3.25% by late 2025, curbing Pound support.
This content was originally published on ExchangeRates.org.uk