Foreign Currency Market Update – GBP / USD Update
The Pound to US Dollar exchange rate plunged to a four-and-a-half-month low last week as speculative investors pushed their Bank of England rate hike bets forward to October of next year.
GBP/USD weakened from 1.5560 to 1.5360 during the first two days of last week’s session as UK government borrowing rose by more-than-anticipated to £12.1 billion in August and Federal Reserve policymaker Dennis Lockhart said that interest rates should rise before the end of the year in America.
On Wednesday it was reported that US manufacturing output remained at a two-year low of 53.0 during September but the soft result was not enough to lift ‘Cable’ as traders pushed back their BoE rate hike bets to October 2016.
And GBP/USD tumbled further on Thursday to a three-week low of 1.5220 as BoE policymaker Ben Broadbent played down the prospect of an imminent rate rise in the UK. The ‘Greenback’ was also supported by comments from Federal Reserve Chairwoman Janet Yellen suggesting that inflation would hit the bank’s 2.0% target in two years time and confirming that US interest rates will likely be raised before the end of the year.
Positive sentiment towards the ‘Greenback’ continued on Friday and the Pound to US Dollar exchange rate plunged to a four-and-a-half-month low of 1.5138 as second quarter US GDP was revised higher to 3.9% from 3.7% and US consumer confidence rose unexpectedly from 85.7 to 87.2.
With GBP/USD settled below 1.5200 there is potential for Sterling to slide toward key psychological support at 1.5000 over the next few weeks if US policymakers continue to beat the 2015 rate hike drum.
Key US labour data released on Friday is tipped to show that unemployment remained at a seven-year low of 5.1% and 202,000 new jobs were created in September. Perhaps even more encouragingly, the average hourly earnings figure is expected to rise from 2.2% to 2.4%. Decent numbers of this ilk are liable to boost Fed rate hike bets and subsequently weigh on demand for ‘Cable’.
Both the UK and US manufacturing sectors are set to see soft output scores, of 51.3 and 50.6, respectively.
Heads Up
Summary of major upcoming data releases that we think may move the market.