The past week has been a remarkable one for the US Dollar, solidifying its position as the top performer against major currencies. In contrast, the British Pound has faced significant challenges, losing ground against most major currencies, notably the USD. This decline in the Pound’s value gained momentum following the release of GDP figures last Wednesday. However, it took a more pronounced hit in response to the recent interest rate decision by the US Federal Reserve.

The Federal Reserve opted to maintain its base interest rate at 5.50%. However, it was Federal Reserve Chairman Jerome Powell’s comments that grabbed attention. He hinted at the possibility of at least one more interest rate hike this year, scheduled for November 1st. This hawkish stance, combined with the overall robustness of the US economy, propelled the US Dollar to the top of the currency hierarchy, while the Pound suffered substantial losses.

Adding to the Pound’s woes, the Bank of England decided to keep its interest rates steady at 5.25%. While this move made sense given the circumstances, such as CPI figures coming in lower than expected at 6.7% (forecasted at 7%), it did little to support the Pound. The UK’s economic situation has been challenging, and Bank of England Governor Andrew Bailey’s statement that further tightening this year is not ruled out failed to bolster the Pound.

The Euro also gained strength against the Pound, pushing the GBP/EUR exchange rate to its lowest point since late May. This decline in the Pound’s value can be attributed more to its own weaknesses than any particularly strong data coming out of the Eurozone.

Predictions for the Pound’s performance for the remainder of the year vary among banks. BNP Paribas, for example, expects the Pound to recover against both the Euro and the US Dollar by year-end. They cite the Pound’s appealing carry prospects, especially in light of persistently high inflation, which may necessitate rates remaining high for longer. However, most analysts concur that the medium-term outlook for the Pound remains challenging, particularly if the Bank of England continues to hold interest rates steady.

In recent developments, the latest UK retail sales figures came in slightly softer than anticipated at 0.4%. While this is a positive reading, it failed to provide much support for the Pound. Additionally, the latest PMI data for manufacturing and services sectors in both the Eurozone and the UK put further downward pressure on the Pound. Looking ahead, the Pound may face more challenges with the release of PMI figures in the United States, which could impact its performance heading into the weekend.

In conclusion, the US Dollar has certainly had an impressive week, asserting its dominance in the foreign exchange market. On the flip side, the Pound has struggled amid economic uncertainties and central bank decisions. As we move forward, the Pound’s fate remains uncertain, with a mix of forecasts and factors at play.