Foreign Currency Market Update – GBP / USD Update
Having recently broken through key psychological resistance of 1.5000 against the US Dollar, Sterling proceeded to rally by a further three cents to strike a fresh seven-week high of 1.5497 against the ‘Greenback’ last week. However, reassuring words from the Federal Reserve and a collapse in British data drove ‘Cable’ down to 1.5160 by the end of the week.
GBP/USD began last week’s session by rallying over half a cent from 1.5180 to 1.5250 in reaction to weaker-than-anticipated US service sector data and a downbeat Dallas Fed manufacturing print.
And Sterling rallied to 1.5340 on Tuesday even though British GDP disappointed at 0.3%, confounding expectations of 0.5%. It was the weakest quarterly UK growth figure since 2012 but it failed to uproot the Pound’s recent spurt of strength against the US Dollar.
‘Cable’ grew to a fresh seven-week high of 1.5497 on Wednesday thanks to a derisory annualised US GDP score of 0.2%, which undershot expectations of 1.0% and marked a massive drop-off from the previous quarter’s score of 2.2%. However, demand for the ‘Greenback’ rebounded during the evening in response to comments from Federal Reserve Chairwoman Janet Yellen suggesting that the slowdown at the start of 2015 would prove temporary and would have little impact on Fed rate hike considerations.
GBP/USD slipped back to 1.5360 on Thursday as markets digested the sober Fed remarks and also as traders got wind of a 15-year low US jobless claims print, which gave US sentiment another push in the right direction.
Sterling then proceeded to capitulate against the US Dollar on Friday in reaction to a dire UK manufacturing PMI result of 51.9, which massively undershot the median market consensus of 54.6. The addition of a downbeat manufacturing PMI score to the week’s underwhelming UK GDP report proved the catalyst for a period of intense volatility in Sterling and led to a two-cent depreciation to 1.5160.
There are a couple of potentially important ecostats to look out for this week but it is probable that demand for GBP/USD will be dictated by speculation regarding Thursday’s UK general election. If the outcome of the vote provides a clear mandate for one party to form a government, or if a swift coalition looks likely, then Sterling could shoot up the currency ladder. But if – and this is considerably more likely – the vote leaves leaders with a lot to do to form a sturdy government then GBP/USD could decline on political uncertainty.
Other factors to look out for include the UK service sector report, which could hurt the Pound if it performs as badly as last week’s manufacturing PMI, and the US non-farm payroll report, which could detract from the ‘Greenback’ if it prints anywhere near as badly as the previous month’s score of 126,000.
Heads Up
Summary of major upcoming data releases that we think may move the market.