Foreign Currency Market Update – GBP / USD Update
Sterling increased in value against the US Dollar last week as upbeat statements from Bank of England officials raised the prospect of US and UK interest rate adjustments converging.
The Pound leaped higher by around 120 pips last Tuesday when BoE Governor Mark Carney remarked that sturdy domestic growth indicators suggest that the time for a rise in interest rates is ‘getting closer’. Fellow central banker David Miles reiterated the Governor’s hawkish sentiments, stating that the bank would not be waiting for the Federal Reserve to make the first move. GBP/USD rallied to 1.5630 as a downbeat -0.3% US retail sales report reduced the appeal of the ‘Greenback’.
Sterling struck a fresh fortnightly high of 1.5673 on Wednesday morning as British wage data showed an increase of 3.2% in average weekly earnings in the three months to May. However, ‘Cable’ didn’t thrash out any lasting gains because investors were slightly disappointed with a surprise rise in the headline UK unemployment rate from 5.5% to 5.6%. Across the pond, Fed Chairwoman Janet Yellen suggested concerns over the sustainability of the latest Greek deal and volatile market conditions in China meant that US rates would remain low until December.
Hopes of US and UK rate hikes converging were boosted on Thursday when BoE Governor Mark Carney hinted that rates were likely to rise around the turn of the year. This pushed GBP/USD briefly back above technical resistance at 1.5660.
It will be interesting to see how well BoE Gov Mark Carney’s recent comments on monetary policy reflect the views of the nine-person rate-setting team. If this Wednesday’s BoE minutes report shows that some officials have already started arguing the case for hiking interest rates then it is entirely possible that Sterling could challenge the 2015 high above 1.5900 that GBP/USD struck back in June. Alternatively, however, we could see the recent Sterling rally peter out against the US Dollar if UK officials appear keen to wait until later on in the year to start pushing for higher rates.
Heads Up
Summary of major upcoming data releases that we think may move the market.