Foreign Currency Market Update – GBP / USD Update
The Pound Sterling to US Dollar (GBP/USD) exchange rate steadily climbed last week on account of weaker-than-forecast US data and central bank speculation. At the close of Friday’s session, the GBP/USD currency pair was trading near eight-week highs.
One factor that’s been weighing on US Dollar strength of late is the possibility that the US Federal Reserve may not hike interest rates as soon as some economists have forecast. Although this hasn’t boded well for the ‘Greenback’, the Pound has enjoyed some support from delayed rate hike expectations.
Initially, investors were expecting a June lift-off, but after several weeks of soft US data, experts are getting cold feet. Last Monday’s Chicago Federal Reserve National Activity Index recorded surprise contraction, coming in at -0.42 rather than the +0.10 forecast.
Federal Reserve Governor William Dudley also spoke during Monday’s session and although he remained upbeat about the prospect of a Fed rate hike by the end of the year, he didn’t inspire hope that the June rate increase was likely.
Tuesday was a quiet day for GBP/USD with US and UK data extremely thin on the ground; however, the Pound jumped against the ‘Buck’ in anticipation of the Bank of England’s (BoE) meeting minutes on Wednesday.
The April policy meeting minutes saw the BoE hint at earlier rate hikes—a move that allowed the Pound to retake 1.50 against the ‘Greenback’.
Additionally, two policymakers found the decision on whether to hike interest rates or not ‘finely balanced’.
Pressure on the Pound is expected to decrease as investors gear up for rate hikes this year; furthermore, the UK general election appears to be having a limited effect on Sterling thus far.
Thursday pulled the US Dollar lower when US New Home Sales slipped by -11.4% in March and Markit’s US Manufacturing Purchasing Managers Index softened from 55.7 to 54.2. Additionally, US labour market stats printed out of line with forecasts and added to speculation that the Federal Reserve is likely to hold off from hiking interest rates in June.
The Federal Open Market Committee has previously placed heavy emphasis on the importance a strong employment sector could have on borrowing costs.
Friday’s US Durable Goods Orders also offered little support to the US Dollar when the ecostat excluding transportation slipped by -0.2%.
This week the Pound Sterling to US Dollar (GBP/USD) exchange rate began trending a little lower ahead of the release of UK data, with ‘Cable’ residing in the region of 1.51.
However, the currency pair may sink lower after the Confederation of British Industry’s (CBI) Business Optimism gauge slipped from 15 to 4 in April.
Major events that could significantly impact the Pound Sterling this week are rather limited with only Tuesday’s UK Gross Domestic Product (GDP) stat worth noting.
However, the US Dollar could swing against other majors with influential data released most days, such as Tuesday’s US Consumer Confidence, Wednesday’s GDP, Thursday’s Personal Consumption Indicator and Friday’s ISM Manufacturing figures.
Perhaps the most influential item on the US agenda this week will be the Federal Open Market Committee’s (FOMC) interest rate announcement, which could cause massive US Dollar movement. Any hawkish tones could see the US Dollar rise, while dovish notes could encourage the ‘Buck’ to drop and potentially allow the Pound hold above the 1.52 barrier.
Heads Up
Summary of major upcoming data releases that we think may move the market.