Foreign Currency Market Update – GBP / USD Update
The Pound to US Dollar exchange rate softened by around -150 pips last week as traders brought ‘Cable’ down from a seven-month high.
Profit-taking stances took GBP/USD lower from 1.5900 to 1.5825 last Monday as investors took advantage of the best Pound to US Dollar exchange rate since November last year.
‘Cable’ declined further on Tuesday, shedding around -80 pips in response to hawkish comments from Federal Reserve policymaker Jerome Powell. The Fed official suggested that we could see US interest rates rise twice (by as much as 100 basis points) before the year is out and this sent the ‘Greenback’ surging across the board.
GBP/USD weakened again on Wednesday as American first quarter GDP was revised higher. The Pound slipped momentarily below 1.5700 in response to an upgrade from -0.7% to -0.2%. Better-than-estimated consumer spending numbers and sturdy inventory figures contributed to the positive revision.
However, Sterling managed to claw back some of its losses on Thursday in response to a disappointing US service sector report, which featured the biggest miss on record. Markets had anticipated a score of 56.5, but the actual result was significantly lower at 54.8. Markit officials noted that the softer trend of US ecostats may cause the Fed to ‘pause for thought before hiking interest rates’.
‘Cable’ remained close to 1.5740 on Friday traders mulled over their Bank of England and Federal Reserve rate hike bets.
Data this week could bolster demand for the Pound if British manufacturing and service sector PMIs print positively. Alternatively, we could see the US Dollar push ahead if UK data disappoints and the US non-farm payroll report impresses with a score north of 250,000. Anything below 200,000 in the NFP could seriously hamper the ‘Greenback’.
It is difficult to predict which central bank will raise rates first – markets expect the Fed to begin tightening in December of this year and the BoE to start in the first quarter of next – but this outlook is far from certain. The key stats this week could help drive rate hike bets so it is important to pay special attention to the UK service sector report and the US non-farm payroll report.
Heads Up
Summary of major upcoming data releases that we think may move the market.