Foreign Currency Market Update – GBP / USD Update
The Pound to US Dollar exchange rate swung from a 50-day high to an 80-day low last week as markets pushed back their Bank of England rate hike expectations in reaction to the latest slowdown in China.
Sterling rose through psychological resistance of 1.5700 against the ‘Greenback’ last Monday as weak data out of China gave way to a mammoth selloff in equity markets, which was seen to rule out the chance of a Federal Reserve rate hike in September.
However, GBP/USD declined from a 50-day high of 1.5805 to settle just below 1.5700 on Tuesday as markets reacted to a surprise 10-point jump in US consumer confidence from 90.9 to 101.5.
‘Cable’ gave up more ground on Wednesday when American data showed that US durable goods orders increased by 2.0% in July, which shocked markets who had been primed for a -0.4% contraction. GBP/USD sunk below 1.5500 in reaction to the US durable goods report and to a downturn in BoE rate hike expectations, which saw markets push back their bets of higher interest rates from Q1 2016 to Q3 2016.
The Pound’s woes continued on Thursday when American Q2 GDP growth was revised higher from 2.3% to 3.7%, which helped push GBP/USD down to 1.5410.
On Friday British Q2 GDP was confirmed at 0.7% and over the weekend BoE Governor Mark Carney reaffirmed his view that interest rates would likely rise early 2016. Officials from the Federal Reserve poured cold water on September rate hike bets but did leave the door open to a rise in interest rates before the year is out if domestic data improves in spite of the crisis in China.
The Pound to US Dollar exchange rate is currently trading at an 80-day low of 1.5325 because investors do not believe that the BoE will look to raise interest rates before the Fed. Traders remain skeptical of BoE Governor Carney’s desire to start hiking in Q1 2016 and this has led to a swathe of flights to the safety of the ‘Greenback’.
This week will see the latest UK service sector data released, which could bolster demand for the Pound if it beats the median market consensus of 57.7 but Sterling could struggle if the US non-farm payrolls report beats estimates of 220,000. There is potential for a rebound in GBP/USD but we will need to see a significant shift in market sentiment before this can happen.
Heads Up
Summary of major upcoming data releases that we think may move the market.