Foreign Currency Market Update – GBP / USD Update
Sterling shrunk by over two cents against the US Dollar last week as markets raised their Federal Reserve rate hike bets.
GBP/USD slid from 1.5470 to 1.5390 on Tuesday as traders continued to buy into the ‘Greenback’ following comments from Fed Chairwoman Janet Yellen suggesting that US interest rates would rise at some point in 2015. The US Dollar was also boosted by a better-than-anticipated 1.0% rise in durable goods, minus aircraft, orders and an uptick in consumer confidence from 94.3 to 95.4.
And Sterling sank to a 20-day low of 1.5310 on Wednesday as traders reacted to news delivered by the Queen during her speech. In the speech it was asserted that Prime Minister David Cameron could wait until the end of 2017 to hold his proposed in/out EU referendum. This unsettled traders who would prefer to get the tedium of political uncertainty over with as soon as possible.
The Pound to US Dollar exchange rate depreciated further to 1.5270 on Thursday in response to a disappointing first quarter UK GDP second revision print of 0.3%. Investors had been primed for a higher score of 0.4% but because improvements in production and construction were undone by a slowdown in service sector activity, the Q1 growth figure did not receive the upgrade that had been expected.
And GBP/USD remained weaker against the US Dollar on Friday even though first quarter US GDP was revised down from +0.2% to -0.7%. Weak trade data, due to the rising Dollar and congestion at West Coast ports, weighed heavily on economic growth but because investors were prepared for an even lower reading of -0.9% the ‘Greenback’ escaped unscathed from the soft score. Most analysts predict that economic output will rebound in the second half of the year and rates are still forecast to rise in December.
Manufacturing data betrayed the Pound earlier this morning by printing at 52.0 compared to forecasts of 52.5. However, the most important events to look out for this week are the UK service sector report, predicted to print at 59.2, and the US non-farm payrolls announcement, expected to show a rise of 225,000 new jobs.
A sharp five-cent depreciation in GBP/USD over the past two weeks opens the door to further declines, with the pairing perhaps falling as far as 1.5000, but decent British services numbers could drive Sterling towards 1.5500. Furthermore, anything below 200,000 in the US NFP report could push back Fed rate hike expectations and therefore weaken demand for the Dollar, whilst anything north of 200,000 should keep the ‘Greenback’ on track.
Heads Up
Summary of major upcoming data releases that we think may move the market.