Foreign Currency Market Update – GBP / USD Update
Sterling failed to breach key psychological resistance of 1.5000 against the US Dollar last week as ‘no-flation’ UK rate cut fears impeded the Pound’s attempts to fight back against the ‘Buck’.
GBP/USD remained below 1.5000 last Monday as a downbeat UK export orders result from the Confederation of British Industry (CBI) weighed on sentiment towards the Pound.
And ‘Cable’ plummeted to 1.4850 on Tuesday when UK inflation fell unexpectedly to 0.0% and US CPI rose to 0.0%. The -70 pip dip in GBP/USD reflected concerns among investors that Britain’s soft inflationary outlook could persuade officials at the Bank of England to loosen monetary policy, rather than tighten.
Talk of a BoE rate cut intensified on Wednesday in response to policymaker Kristin Forbes’ remarks on the potential for rates to be slashed if inflation continued to decline. However, the Pound did not weaken further because demand for the ‘Greenback’ was hurt by a dud -1.4% durable goods orders print.
The Pound to US Dollar exchange rate reached a twenty-day high of 1.4953 on Thursday but Sterling was unable to hold onto its gains because the ‘Greenback’ was boosted by comments from Federal Reserve policymaker James Bullard suggesting that ‘now may be a good time to begin normalising US monetary policy’.
Sterling closed for the week just below 1.4900 as BoE Governor Mark Carney assuaged fears that rates could be slashed in Britain and annualised US GDP came in at 2.2% for the fourth quarter of 2014, confounding expectations of an upgrade to 2.4%.
The big event on the economic calendar this week is Friday’s US non-farm payroll report, which is expected to print at 250,000. In recent months the NFP numbers have outperformed market expectations and subsequently given the US Dollar a significant boost; a repeat of this scenario could see GBP/USD slide back towards 1.4700 as Fed June rate hike bets proliferate. However, a softer-than-anticipated score could push back hike bets to September, which could help drive ‘Cable’ back above significant resistance at 1.5000.
Other data releases too look out for include the UK manufacturing PMI report and the US factory output equivalent, however, the American labour market report is liable to have the biggest impact on GBP/USD.
Heads Up
Summary of major upcoming data releases that we think may move the market.