The recent optimism surrounding the GBP gains has hit a snag as the currency struggled to maintain its upward momentum against the USD in the past few days. This decline can be attributed to discussions of ramping up quantitative tightening measures by Andrew Bailey and the Bank of England, which has further contributed to the GBP’s slide against the USD. Additionally, the USD’s overall strength, fuelled by expectations of a possible interest rate hike by the Federal Reserve and the US government’s move to increase the debt ceiling to avoid defaulting, has created challenges for competing currencies that were hoping for continued gains after a promising last two months.

The GBP’s recent struggles have had a knock-on effect in the Eurozone, where both the USD and GBP have made gains. This impact is partly due to the bank holidays observed in Germany and France over the past couple of days. Lately, EUR has shown a general trend of weakness against the GBP, with occasional rapid selloffs providing favourable exchange rates for both buyers and sellers of the shared currency.

This morning’s release of the latest consumer confidence figures in the UK showed results in line with forecasts, marking the strongest outcome since March 2022. Additionally, expectations of higher real wages and reassurances from Andrew Bailey that inflation is on the decline have brought some relief. These positive indicators support the growing belief that the initial economic impact of the COVID-19 pandemic may not be as severe as initially predicted, with some forecasters even suggesting that a widespread recession may be avoided.

Looking ahead, Tuesday will be the standout day next week, with the flash services and manufacturing PMI for the G3 economies will be released. This data will be closely analysed as economies around the world gradually recover from the pandemic, and assessing their health becomes increasingly important. However, it is worth keeping in mind that potential disruptions, such as the looming threat of World War 3, could drastically change the economic landscape, particularly regarding the role of the USD as the global reserve currency.

Despite the setbacks GBP has seen against USD this week, positive signs remain, such as the encouraging UK consumer confidence figures, growing real-wage expectations, and indications of decreasing inflation as energy crises subside and labour markets stabilise. In short we are still on track to see a stronger Sterling by the end of the year.