Foreign Currency Market Update – GBP / USD Update
The past five days have seen the Pound Sterling to US Dollar exchange rate fall from a high of 1.5770 (an over seven-month best) to a low of 1.5541. Pared back Federal Reserve interest rate hike expectations have weighed on the US Dollar in recent weeks, but hints from a Fed official that two adjustments could take place this year put a September hike back on the table and bolstered demand for the ‘Greenback’. Additionally, the deterioration of the Greek bailout negotiations upped the appeal of safe-haven assets like the US Dollar.
As the week progressed, the Pound Sterling to US Dollar (GBP/USD) exchange rate continued trending around the 1.56⁄1.55 level as US Consumer Confidence surged, the UK’s Manufacturing PMI fell short and the ADP Employment Change report showed that the US economy added more positions than expected in June. US Construction Spending also increased by more than anticipated on a month-on-month basis while the nation’s ISM Manufacturing PMI advanced from 52.8 to 53.5. These reports contributed to ‘Cable’ drifting to a two-week low.
Although the US Non-Farm Payrolls report revealed an unexpected slowing in wage growth towards the end of last week and the gauge of the UK Services sector climbed, concerns relating to Sunday’s Greek referendum prevented the Pound from staging a rebound against its US peer. The victory for the ‘No’ camp in Greece ensured that the US Dollar retained the upper hand at the beginning of this week, but the Pound was able to claw back some of its losses thanks to the US ISM Non Manufacturing Composite index failing to show the increase expected by economists.
Over the next few days the UK’s Industrial/Manufacturing Production reports and the NIESR GDP data for June could impact GBP/USD exchange rate trading, but investors will also be focusing on the publication of minutes from the latest Federal Open Market Committee (FOMC) policy meeting. As the minutes were taken before the release of the disappointing NFP report they could be hawkish in tone. Should the Fed imply that a September rate adjustment is on the horizon, the Pound could fall against the US Dollar in the second half of the week. However, references to adjustments being delayed in light of Greek uncertainty have the potential to weigh on the US currency and help Sterling recover losses.
Heads Up
Summary of major upcoming data releases that we think may move the market.