GBP USD Exchange Rate: The Week Ahead February 21st

The pound settled just below 1.36 at the end of last week having broken through the resistance level on the back of interest rate expectations.

On Wednesday, data showing that inflation in Britain jumped to a near 30-year high turned up the heat on the Bank of England (BoE) to hike interest rates again in March to quell prices.

The dollar’s picture was illustrated by seesawing risk sentiment last week amid Russia-Ukraine tensions. By Friday, a risk-on mood in markets weighed on the safe-haven US currency after US secretary of state Antony Blinken revealed that he had accepted an invitation to meet with his Russian counterpart – providing renewed hopes for a diplomatic resolution.

BoE officials in focus for the pound

Any escalation in the Russia-Ukraine conflict this week would dampen risk sentiment and the pound’s appeal with it. Things are finely balanced after Russian president Vladimir Putin and French president Emmanuel Macron agreed to try to secure a ceasefire in eastern Ukraine over the weekend.

The BoE’s David Ramsden has his first speaking engagement since voting for a 50-basis-point rate hike in February. Investors will monitor his comments for clues about future policy tightening to tame red-hot inflation.

Flash PMIs for the services and manufacturing sectors on Monday morning are expected to show post-Omicron economic improvements. Investors must wait until Friday for the next notable release from the UK economy when the GfK consumer confidence reading for February hits the headlines.

Risk sentiment in focus for the dollar

In contrast to the riskier pound, the safe-haven dollar’s appeal would be enhanced by Russian aggression at the Ukraine border.

The President’s Day bank holiday on Monday means it’s a quiet start to the week in the US economic calendar. The pace picks up on Tuesday with the publication of the flash PMIs and consumer confidence index for February.

On Thursday, the second estimate of fourth-quarter gross domestic product is expected to be revised slightly higher to 7%.

Friday’s personal consumption expenditures (PCE) report will attract most investor attention this week from a data perspective. The consensus is for personal consumption to have jumped 1.5% month-on-month in January, more than reversing the prior month’s dip. Personal income, however, is expected to have declined by 0.3% month-on-month.

Crucially, the core PCE price index – a key inflation metric – is forecast to have edged up by another 0.5% month-on-month in January, reinforcing the concerning trend displayed in the consumer price figures.

Any positive surprises in the upcoming slew of data – particularly the PCE print – could bolster the dollar, which has gained modestly from growing expectations that the Federal Reserve will hike interest rates in March.

Investors will assess Fed policy-setters appetite for a half-point rate move in March by monitoring speeches by governors Christopher Waller and Michelle Bowman and regional Fed presidents Loretta Mester of Cleveland, Raphael Bostic of Atlanta and Thomas Barkin of Richmond.

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