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Glum UK Growth Outlook Knocks GBP/USD to 3-Month-Lows

Last week’s high: $1.3791

Last week’s low: $1.3498

Pound Hits Lows Versus US Dollar as Bank of England Rate Hike Bets Fade

Over the last week, almost all confidence in the possibility of a May interest rate hike from the Bank of England (BoE) faded, as Britain’s latest PMIs indicated that the UK economy performed below trend in April.

The US Dollar was able to easily capitalise on Sterling weakness, as the US currency’s rally continued throughout the week.

The US Dollar outlook remains solid on expectations that US inflation is strengthening and the Federal Reserve will hike US interest rates at least three times in 2018. The next rate hike is currently priced in for June.

Markets are also becoming increasingly confident that the Fed could even hike US rates four times total in 2018, which is keeping the US Dollar appealing.

The US Dollar saw another brief boost in demand following the publication of the US Non-Farm Payroll report on Friday. The data showed that the US unemployment rate had improved even more than expected – to 3.9%.

USD Outlook: Could Bank of England (BoE) Meeting Boost Pound Outlook?

Next week’s economic calendar will be a little quieter, but Pound investors are likely to be focused on Thursday’s anticipated Bank of England (BoE) policy decision regardless.

Until the second half of April, investors widely expected the BoE would hike UK interest rates in its May meeting. However, as the UK economic outlook has since fallen, markets will be looking for the bank’s views on Britain’s economy.

If the bank shows confidence in Britain’s economic strength despite the data, this could notably boost the Pound outlook and make investors hope for a BoE interest rate hike later in the year.

However, a more cautious and dovish tone from the bank would weigh on the Pound to US Dollar exchange rate.

The most influential US data next week will be the nation’s April inflation results on Thursday, which could weaken the US Dollar outlook if they disappoint.

Key Events

9th May

15:00 US Wholesale Inventories

10th May

09:30 UK Industrial and Manufacturing Production

09:30 UK Balance of Trade

12:00 Bank of England Policy Decision

13:00 UK NIESR GDP Estimate

13:30 US Inflation Rate

11th May

13:30 US Export and Import Prices

15:00 US Michigan University Consumer Sentiment

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To keep up to date with the US Dollar, visit the USD blog in our Currency News section.

Arron Morris

Senior Currency Broker
T: 01442 892 065

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