Foreign Currency Market Update – GBP / USD Update
Over the course of last week the Pound Sterling to US Dollar exchange rate moved between lows of 1.5146 and highs of 1.5376.
‘Cable’, while initially gaining following the release of the last US Non-Farm Payrolls report, went on to decline as bets the data will delay the first increase of US interest rates saw UK hike expectations similarly pushed back. The Pound came under further pressure on Monday as the UK Services PMI unexpectedly declined in September, displaying the weakest rise in activity for over two years.
As the services sector accounts for the highest percentage of UK GDP the result sent the Pound lower across the board. In a statement published with the report Markit economist Chris Williamson noted; ‘Weakness is spreading from the struggling manufacturing sector, hitting transport and other industrial-related services in particular. There are also signs that consumers have become more cautious and are pulling back on their leisure spending, such as on restaurants and hotels. Wider business confidence has meanwhile also been knocked by global economic worries and financial market jitters.’
GBP/USD losses were a little limited as the US Non-Manufacturing Services PMI also fell short of forecasts and the pairing rallied later in the week as the UK published better-than-forecast Industrial and Manufacturing Production data.
As the minutes from the last Federal Open Market Committee (FOMC) policy meeting did little to raise hopes of an interest rate adjustment taking place this month, both the Pound and US Dollar came under pressure on Thursday, with additional strain falling on Sterling as a result of minutes from the day’s BoE gathering. The British central bank was fairly dovish on the subject of UK interest rate adjustments, leaving some industry experts betting that no moves will be made until the end of 2016 or beginning of 2017.
The Pound to US Dollar pairing began this week trending around the 1.5352 level, with the Pound managing to post a modest gain in spite of a dearth of UK data and some hawkish rate-related comments from Federal Reserve officials.
We can expect the GBP/USD exchange rate to experience significant shifts over the next few days if the high-profile UK and US reports scheduled for release either fail to meet or exceed forecasts. The first occasion for volatility arrives tomorrow with the publication of the UK’s Consumer Price Index for September. Although the core measure of inflation is forecast to increase from 1.0% to 1.1% in September, the non-core measure is expected to print at 0.0% – unchanged from the figure recorded in August. As the BoE has intimated that consumer price pressures will need to increase before it will consider revising borrowing costs, a surprise uptick in inflation would be Pound-supportive. A reading of 0.1% or higher could potentially send GBP/USD back to 1.54 before Wednesday and the release of Advance US Retail Sales numbers.
Other reports likely to impact Pound Sterling to US Dollar trading over the next five days include the UK’s employment change/average earnings numbers, the US Consumer Price Index and the University of Michigan Consumer Confidence gauge.
Heads Up
Summary of major upcoming data releases that we think may move the market.