Foreign Currency Market Update – GBP / USD Update
In a week of dovish remarks from both central banks it was the Pound that came out on top against the US Dollar.
GBP/USD rallied from 1.4760 to 1.4845 at the start of last week’s session as a downbeat -0.2% decline in US industrial production prompted a rebound in demand for the Pound, which took ‘cable’ up from its previous four-and-a-half-year low.
However, the Pound gave back most of its gains on Tuesday and slinked back down towards 1.4750, before sinking to a new multi-year low of 1.4635 on Wednesday morning when a trio of disappointing British economic announcements hit the newswires. The Pound was hit by a perfect storm of below consensus UK unemployment (5.7%), softer wage growth (1.8%) and dovish rhetoric from the Bank of England (inflation concerns), which appeared to reduce the probability of an interest rate rise ahead of the bank’s schedule.
But Wednesday was a tumultuous day for the Pound to US Dollar exchange rate and Sterling roared back into life during the evening in response to comments from the Federal Reserve suggesting that ‘further improvements’ would have to be seen before the US benchmark interest rate was increased. This weighed heavily on demand for the ‘Greenback’ because investors had been primed for a statement paving the way for a rate rise in June.
GBP/USD moved back down towards 1.4750 on Thursday as markets digested the latest remarks from the Fed in more detail and decided that rates could still be on course to rise in June. The Pound was also hit by comments from BoE policymaker Andy Haladane suggesting that there was a 50⁄50 chance of rates moving either higher or lower.
But the twists and turns in sentiment were not finished yet: ‘cable’ rallied by a full 200 pips to 1.4960 on Friday afternoon in response to a statement from Fed policymaker Dennis Lockhart indicating that rates may remain on hold all the way until September.
Looking ahead to this week’s session there appears to be potential for large moves in either direction. The Pound is sitting just below key psychological resistance at 1.5000, which, if broken, could propel Sterling towards 1.5200. However, if GBP/USD starts slipping again it could easily slide all the way back down to 1.4750.
Data looks set to print in Sterling’s favour with UK inflation likely to remain above zero at 0.1% and US consumer prices predicted to remain below zero at -0.1%. Any upward or downward deviations could prove reciprocally positive or negative for either currency.
Heads Up
Summary of major upcoming data releases that we think may move the market.