Investing.com - The dollar fell sharply against the pound on Friday as uncertainty over how quickly U.S. interest rates will rise sparked a broad based selloff in the greenback.
GBP/USD was up 1.36% to 1.4953 late Friday, bringing the week’s gains to 1.3%.
The sharp drop in the dollar came about amid uncertainty over the path of U.S. monetary policy after the Federal Reserve downgraded its forecasts for growth and inflation and lowered its interest rate projections on Wednesday.
The Fed statement dampened expectations for a mid-year rate hike, prompting investors to exit positions which would benefit from a strong dollar, sparking volatility in the foreign exchange market.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, ended the week down 2.53%, posting the biggest weekly decline since October 2011.
Despite the past week’s reversal the dollar looks likely to continue to strengthen, with the Fed still expected to raise interest rates ahead of other central banks.
The Bank of England warned Wednesday that sterling’s recent gains could keep inflation below target, which would warrant keeping interest rates on hold for longer.
The minutes of the BoE’s March meeting showed that official were concerned that sterling’s recent gains could continue, due in part to the European Central Bank launching its trillion-euro quantitative easing program.
In the week ahead, investors will be focusing on Tuesday’s U.S. inflation report after Fed Chair Janet Yellen warned last week that the stronger dollar was pushing down inflation. The U.K. is also to release its inflation report on Tuesday and Wednesday’s data on U.S. durable goods orders will also be closely watched.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, March 23
The U.K. is to release private sector data on industrial order expectations.
The U.S. is to release a report on existing home sales.
Tuesday, March 24
Both the U.K. and the U.S. are to release reports on consumer inflation. The U.S. is also to release data on new home sales.
Wednesday, March 25
The U.K. is to release private sector reports on mortgage approvals and retail sales.
The U.S. is to publish data on durable goods orders.
Thursday, March 26
The U.K. is to produce data on retail sales.
Friday, March 27
The U.S. is to round up the week with final data on fourth quarter economic growth and the revised reading of the University of Michigan consumer sentiment index.