Foreign Currency Market Update – GBP / USD Update
An impressive US non-farm payroll gain and an underwhelming British service sector report ensured that Sterling remained at depressed levels against the US Dollar last week.
The Pound to US Dollar exchange rate briefly sank below 1.5200 last Monday as traders reacted to Markit Economics’ latest UK manufacturing report. The factory output PMI printed at 52.0, disappointing expectations of 52.5. The American equivalent (the ISM manufacturing index) printed slightly higher at 52.8.
However, Sterling managed to steal a strong day of gains on Tuesday, rallying all the way to 1.5350 in reaction to an uptick in UK construction output, which rose from 54.2 to 55.9.
But the Pound’s glory proved fleeting and ‘Cable’ declined on Wednesday morning when data showed that output in Britain’s dominant service sector cooled from 59.5 to 56.5 during May. The dud result hurt Bank of England rate hike expectations and suggests that Britain will only be able to muster economic growth in the region of 0.4% in the second quarter.
A brief rally took GBP/USD to a weekly high of 1.5540 on Thursday morning but the Pound softened during the afternoon.
And the ‘Greenback’ pushed ahead further against Sterling on Friday in response to a bumper US non-farm payrolls result of 280,000, which massively outshone forecasts of 226,000. The upbeat labour market report was especially encouraging because it was accompanied by a surprise 2.3% rise in average wages, which caused some analysts to reconsider the possibility of a Federal Reserve interest rate hike in September. GBP/USD fell to 1.5260
The economic calendar only really has two events with the potential to seriously alter trading patterns this week: the UK industrial production print and the US advanced retail sales report. Both are anticipated to augur well for their respective currencies so we could see ‘Cable’ trade between technical support at 1.5170 and resistance at 1.5460 for the remainder of this week’s session.
Heads Up
Summary of major upcoming data releases that we think may move the market.