The Pound to US Dollar (GBP/USD) exchange rate found support just above the 1.3800 level and edged higher to 1.3820 in early Europe as gains in US equity futures helped support risk appetite.
There are expectations that US data releases will maintain a strong tone this week with the ISM business confidence manufacturing data set for release on Monday and forecast to post a record high.
Fed Chair Powell is also likely to face questions over US monetary policy after a speech on community banking.
Sterling confidence remained shaken following the GBP/USD slide seen on Friday, especially after the inability to test the 1.4000 level.
The Pound to US Dollar (GBP/USD) exchange rate rallied last week, with the pairing coming within spitting distance of $1.40 in the wake of the Federal Reserve’s latest policy meeting.
US Dollar (USD) Exchange Rates Punished by a Dovish Fed
The US Dollar (USD) suffered an aggressive sell-off last week, centered around the Federal Reserve’s latest policy statement.
After keeping interest rates on hold as expected last month the Fed struck a notably dovish tone in its forward guidance despite acknowledging that recent US economic data has been largely positive.
The US Dollar selloff was triggered by Fed Chair Jerome Powell, as he stressed that the US economy still has a long way to go’ and that the recent surge in inflation has been driven by ‘transitory factors.
This was interpreted by USD investors as a sign that the Fed is willing to maintain its ultra-loose monetary policy for longer than previously thought.
However, the US Dollar was able to claw back some of these losses in the latter half of the week, with the currency initially receiving a boost as US GDP printed above expectations in the first quarter.
This recovery was then further supported at the end of the session after data showed a dramatic surge in US personal spending in March and the market risk appetite was softened by some underwhelming Chinese data.
Pound (GBP) Gains Undermined by Political Uncertainty
Meanwhile, the Pound (GBP) opened on strong footing against the US Dollar (USD) last week, with the currency initially receiving a boost amidst rising economic optimism in the UK.
The Pound’s upward trajectory was then further reinforced by the publication of the Confederation of British Industry’s (CBI) latest distributive trade index, which revealed that retailers enjoyed their sharpest increase in sales volumes in over two years last month.
However, while the GBP/USD exchange rate was able to rally further through the second half of the week thanks to broad weakness in the US Dollar, these gains were tempered somewhat by some UK political uncertainty.
This followed the news that the UK’s Electoral Commission would be launching a formal investigation into how Boris Johnson funded the refurbishment of his Downing Street flat, with analysts expressing concerns that this could hurt the Conservatives in the upcoming local and Scottish elections.
GBP/USD LONG (Buy)
ENTER AT: 1.3848