Foreign Currency Market Update – GBP / USD Update
‘Cable’ weakened by over a cent last week as the latest policy announcement from the Bank of England signalled that rates would probably not rise in 2015 and a decent US non-farm payrolls report kept hopes alive of a September hike from the Federal Reserve.
Sterling softened by around a third of a cent to 1.5590 last Monday as investors reacted negatively to a report showing that British manufacturing output remained tepid at 51.9 in July. The US factory output ISM printed at 52.7.
GBP/USD dipped below technical support at 1.5560 on Tuesday as UK construction activity came in slower-than-anticipated at 57.1, down from 58.1 previously.
Wednesday saw a soft UK service sector PMI report complete a full set of underwhelming private sector indexes for July. However, Sterling managed to rally by around 60 pips to 1.5620 against the US Dollar due to an uptick of almost $3 billion in the US trade deficit.
Sterling tumbled again on Thursday when the Bank of England reduced its 2015 inflation projection from 0.6% to 0.3%, which was seen to greatly decrease the chances of an interest rate hike from the central bank before the end of the year. Comments made by Governor Mark Carney appeared to keep the door open for a rate rise in the first quarter of next year but Britain’s soft inflationary outlook and the recent appreciation in Sterling were cited as reasons to hold off until after the New Year. The minutes report showed that one policymaker did vote for a hike in August but this was not enough to lift Sterling sentiment because investors had hoped for at least two, possibly three, hawkish members of the Monetary Policy Committee (MPC). The Pound to US Dollar exchange rate plunged below 1.5500 in reaction to the BoE’s latest policy statements.
And GBP/USD sunk to a monthly low of 1.5425 on Friday afternoon when the US non-farm payroll report came in sturdily at 215,000, which many economists took as a sign that the Federal Reserve will begin its hiking cycle in September.
This week’s economic calendar has a couple of important releases to look out for.
On Wednesday the latest UK labour market report is tipped to show that the jobless rate held firm at 5.6% in the three months to June, but the Pound could soften if wage data shows a deceleration form 3.2% to 2.8% as expected.
On Thursday a US retail sales report is anticipated to reveal that consumer spending rebounded from -0.3% to +0.6% in July, which could bolster the appeal of the ‘Greenback’.
Finally, on Friday US industrial production is expected to print at 0.3% and any deviations from the forecast could drive traders into or out of the world’s premier reserve currency.
The American media viewed last Friday’s solid US NFP report as a sign that a rate rise is imminent and GBP/USD could weaken as this view prevails. However, a September hike is far from certain and if the optimism wanes there is potential for a rebound in Sterling’s favour.
Heads Up
Summary of major upcoming data releases that we think may move the market.