ExchangeRates.org.uk - At the time of writing, GBP/USD traded at $1.2939, having retreated from its high of around $1.2982.The US Dollar (USD) fluctuated at the start of last week before striking fresh multi-month lows as fears of a recession in America continued to weigh on the currency.
Markets remained fearful that US tariffs and retaliatory measures from other countries could hurt the US economy, which in turn fuelled bets on more interest rate cuts from the Federal Reserve.
USD recovered from its lowest levels in the latter part of the week, following cooler-than-forecast US inflation.
Although this would usually dent USD by boosting Fed rate cut bets, easing inflation instead managed to soothe recession fears somewhat and help the ‘Greenback’ claw back some losses.
Meanwhile, the Pound (GBP) found success last week as the UK currency was less affected by global trade war fears than other currencies.
Although the UK was included in Donald Trump’s 25% tariffs on all steel and aluminium, the British economy is expected to be less badly impacted than countries such as the US, Australia, Canada and the EU.
After striking a fresh four-month high against the US Dollar, the Pound then ceded most of these gains amid uncertainty over the Bank of England’s (BoE) policy outlook.
In addition, an unexpected contraction in UK GDP in January, reported at the end of the week, saw Sterling end the session on a sour note.
Looking forward, both the Federal Reserve and the Bank of England have their interest rate decisions this week.
First up is the Fed, with the US central bank expected to leave interest rates unchanged.
The focus therefore will be on the bank’s forward guidance, including its interest rate and economic projections.
If the Fed expresses concerns about the impacts of tariffs on the US economy, and suggests it could cut rates quicker amid slower growth, the US dollar could slide.
Conversely, if the bank suggests that tariffs may push up inflation and that the American economy could hold strong in the long term, USD may rise.
Meanwhile, the BoE is also set to leave interest rates unchanged.
However, after Friday’s downbeat GDP there is an outside chance the bank could cut rates.
A rate cut would likely see Sterling stumble, while GBP could hold steady if the bank leaves rates unchanged as expected.
This content was originally published on ExchangeRates.org.uk