Foreign Currency Market Update – GBP / USD Update
Sterling rocketed higher against the US Dollar midway through last week’s session thanks to a better-than-expected seven-year low unemployment score.
The Pound fell by over -100 pips to 1.5220 against the ‘Greenback’ last Tuesday due to a surprise dip in UK consumer prices, which saw price pressures fall into negative territory at -0.1% and subsequently led to a weakening of Bank of England rate hike bets.
However, ‘Cable’ jumped higher by over 200 pips to 1.5480 on Wednesday thanks to an un-telegraphed downtick in the British jobless rate, which brought unemployment down to a joint seven-year low of 5.4%. The Pound was also boosted by a stronger-than-expected acceleration in wage growth from 2.9% to 3.0% and the US Dollar was injured by a subdued American retail sales print of just 0.1%, which was seen to make the prospect of a 2015 rate hike from the Federal Reserve even less likely than beforehand.
GBP/USD remained flat on Thursday as US CPI printed at 0.0%, which was slightly higher than the median market consensus of -0.1%. The core inflation figure, which strips out the volatile food and energy sectors, came in strongly at 1.9% but Fed rate hike bets remained weak due to underwhelming wage growth of just 2.2%.
The Pound to US Dollar exchange rate lost a little bit of ground on Friday as US consumer confidence impressed at 92.1 but Sterling’s losses were muted due to a hawkish statement from BoE policymaker Kristin Forbes suggesting that emerging market problems have not had a significant impact on the British economy to date.
There is only one economic release of real importance this week related to Sterling or the ‘Greenback’ and that is Thursday’s UK retail sales report, which is tipped to show a 0.4% monthly increase in consumer sales volumes and a 4.7% rise in the annualised retail index.
With Fed rate hike expectations well and truly suggesting that the central bank will wait until next year to begin tightening monetary policy there is scope for Sterling to rally as the BoE’s outlook starts to align with the Fed’s. A monthly high of 1.5600 is not out of the question for GBP/USD this week.
Heads Up
Summary of major upcoming data releases that we think may move the market.