The Pound started this week on the back foot, with the Dollar strengthening following hawkish comments made by the Federal Reserve at the Semi-Annual Monetary Policy Report. Although it was forecast to happen a couple of months back, the Pound looked as if it would be able to ride out the USD strength and remain above 1.20. This week however, showed just how quickly markets can move currently, with Sterling losing considerable ground in the early-mid parts of the week, at one point looking to drop to just above 1.17.

It is now looking likely that the US will continue to keep raising interest rates long into the year (of course, still very data dependent). They are looking to see an economic slowdown, potentially a recession, before they stop increasing interest rates. This caused a wobble in the markets as they had been expecting the Fed to stop increasing within the next couple of base rate meetings, hence the sharp decline in most major currencies against the USD. Today’s US employment data, which was already the standout news for the week in the US, is now a vital reading that traders will be analysing to assess economic health. As employment figures are currently seen as the leading indicator of economic health, we are expecting a day of high volatility ahead.

This morning we have seen GDP in the UK surprise to the upside, coming in at 0.3% (forecast at 0.1%), which indicates once again that the UK is seemingly holding off the recession for yet another month. The Pound made gains this morning off the back of this. There is a feeling of quiet optimism surrounding the G3 economies at the moment, with their respective economies holding fast amid higher interest rates. Whilst this is highly likely to be short-lived, and I would still expect to see a slowdown at some point, it is certainly taking longer than I initially anticipated. As we look ahead to next week, we see another week where the UK data is relatively light. Therefore, GBP gains will be highly dependent on data coming out of the US and Eurozone. Luckily there is plenty of it with the Eurozone making their latest base rate decision and the US posting both CPI and retail sales figures. Unfortunately, if forecasts are correct, it will be another difficult week for the Pound.