Foreign Currency Market Update – GBP / USD Update
The Pound broke through technical resistance against the US Dollar last week but the rally broke down when British retail sales printed disappointingly for June.
‘Cable’ began last week’s session just below the 1.5600 mark and GBP/USD traded lower to 1.5560 on Tuesday in response to British Chancellor George Osborne’s vow to cut public spending by a further -£20 billion by November. The austerity package hurt the Pound because it was seen to reduce GDP prospects and therefore Bank of England rate hike speculation.
Sterling surged through resistance to strike a weekly high of 1.5671 on Wednesday morning thanks to an upbeat BoE minutes report, which showed that now the threat of Greece exiting the currency bloc has receded there is a much higher chance of central bank officials voting for tighter monetary policy. Analysts now predict that three policymaker will vote for higher rates in August.
But the Pound’s bubble burst on Thursday and GBP/USD suffered a sharp -130 pip decline as British retail sales disappointed at -0.2% compared to forecasts of +0.4%. The soft retail report boded badly for Sterling because consumer spending accounts for a large proportion of the UK economy. Meanwhile, the ‘Greenback’ was boosted by a 42-year low jobless claims score of 255,000.
There are three key events to look out for on the economic calendar this week.
The first is Tuesday’s UK GDP report, which is anticipated to show an acceleration from 0.4% to 0.7% in the second quarter of 2015, quarter-on-quarter. A score of this ilk would likely bolster the appeal of the Pound but anything below 0.7% could seriously undermine demand for Sterling.
The second event is Wednesday’s policy announcement from the Federal Reserve, which could hurt the ‘Greenback’ if it sees a downgrade to 2015 rate hike projections. Previous Fed reports suggested that the benchmark rate would rise 50 basis points by the end of the year but recent events suggest the first 25 basis point hike will likely take place in December. The US Dollar could decline if the Fed does indeed alter its forecasts but there is potential for appreciation if the possibility of a September hike is kept alive.
The third event is Thursday’s US GDP report, which is tipped to show a rebound in annualised growth from -0.2% to +2.5% in Q2. This could help prop-up the ‘Greenback’ as long as investors haven’t been significantly put off by the FOMC statement.
Heads Up
Summary of major upcoming data releases that we think may move the market.