Foreign Currency Market Update – GBP / USD Update
Sterling strengthened by around 350 pips against the US Dollar last week as investors began to bring forward their Bank of England rate hike expectations and push back their Federal Reserve tightening estimates.
GBP/USD rallied by around half a cent to 1.5600 last Monday as markets sold the ‘Greenback’ in response to a disappointing -0.2% contraction in US industrial output.
And the Pound registered another half-cent gain on Tuesday thanks to news that British inflation rebounded from -0.1% to +0.1% during May, which many saw as a sign that price pressures could have bottomed out and will now begin rising back towards the BoE’s 2.0% target.
The Pound to US Dollar exchange rate jumped to its highest level in seven months on Wednesday when British wages printed substantially higher-than-anticipated, at 2.7% compared to forecasts of 2.1%, and Fed rate hike bets were pushed back in response to a slightly cautious statement from the US central bank. Fed Chairwoman Janet Yellen announced that interest rates would likely rise by the end of the year but suggested the first hike would probably take place in December and not September. Comments regarding the potential for Greece to disrupt financial markets also weighed on the US Dollar because they were seen to threaten the Fed’s hiking outlook.
GBP/USD rallied by another half-cent on Thursday to strike a new seven-month high just north of 1.5900 as British retail sales came in at 0.2% and US inflation printed slightly below consensus at 0.0%.
The Pound remained close to seven-month highs during Friday’s session and could maintain a strong exchange rate against the ‘Greenback’ this week if US data does not increase the chances of a 2015 rate hike from the Federal Reserve.
US durable goods are tipped to contract by -0.7%, which could hurt the US Dollar, but first quarter GDP is expected to be revised higher from -0.7% to -0.2%, which could give the ‘Greenback’ a little more room to breathe.
In this fairly quiet week of ecostats it is unlikely that we will see the Pound register any significant gains but we could see GBP/USD retain a sturdy exchange rate above 1.5800.
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