Foreign Currency Market Update – GBP / USD Update
The Pound finally managed to break through longstanding technical and psychological resistance at 1.5700 to strike a new 50-day high last week.
GBP/USD started the week at around 1.5640 and the Pound weakened by just over half a cent to 1.5590 during the evening even though a US manufacturing report showed that activity in the New York region slowed to its worst level since 2009 during July.
However, Sterling shot up against the ‘Greenback’ on Tuesday morning when British inflation data showed that consumer prices rose unexpectedly by 0.1% in July and that underlying price pressures increased by 1.2%. Some traders saw the slight uptick in CPI as a sign that sturdy wage growth was feeding into the wider economy and would persuade the Bank of England to start raising interest rates around the turn of the year.
‘Cable’ remained close to resistance at 1.5700 on Wednesday as US consumer prices rose from 0.1% to 0.2% but minutes from the latest Federal Reserve policy meeting showed that officials were worried about the prospect of inflation rising to the 2.0% target. The minutes pertained to a discussion held before the recent bout of volatility occurred in China and investors decided that if policymakers were worried about disinflation before the People’s Bank of China devalued the Yuan they would definitely be averse to raising rates after the shock PBoC announcements.
GBP/USD failed to settle above 1.5700 on Thursday as a slightly underwhelming UK retail sales score of 4.2%, compared to forecasts of 4.4%, weighed on demand for the Pound.
However, it was reported on Friday that Britain posted a rare trade surplus of £1.3 billion last month and this helped drive Sterling higher versus the ‘Greenback’.
The Pound to US Dollar is currently sitting at a 50-day high of 1.5750 and we could see Sterling push further ahead if UK and US central bank interest rate projections are seen to converge at the Jackson Hole Symposium in Wyoming. The recent bloodbath in equity markets, which has seen over $1 trillion wiped out in global stocks over the past month in response to the crash in China, means that the Fed is highly unlikely to hike in September. GBP/USD is liable to rally if Fed officials explicitly signal that a September hike is off the table and Sterling could attract buyers if Governor Mark Carney strikes a positive tone at the symposium.
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