Foreign Currency Market Update – GBP / USD Update
Sterling sank to a six-month low against the US Dollar last week as Bank of England rate hike bets were hurt by dovish remarks from Governor Mark Carney and US rate hike bets soared following a remarkably high US non-farm payroll report.
The Pound rose to 1.5480 last Monday thanks to a surprisingly strong UK manufacturing PMI score of 55.8, which beat expectations of 51.3. In the US the headline ISM factory output index slowed from 50.2 to 50.1.
On Tuesday UK construction printed at 58.8 and GBP/USD traded around the 1.5430 mark for the majority of the day.
‘Cable’ retained a sturdy exchange rate through the London session on Wednesday as British service sector output impressed at 54.9, beating estimates of 54.5. However, support gave way during the evening and Sterling slumped as markets reacted to hawkish remarks from Federal Reserve Chairwoman Janet Yellen suggesting that there was a ‘live possibility’ of a rate hike this December. GBP/USD softened to 1.5240 in response.
And the Pound’s fortunes worsened on Thursday afternoon when Bank of England Governor Mark Carney talked up problems with the global economy and released an updated set of economic forecasts suggesting that rates may not rise until the first quarter of 2017. The central banker did state that it would be ‘prudent’ to suggest that rates will rise in 2016 but demand for Sterling weakened markedly following the BoE announcements.
The Pound to US Dollar exchange rate fell further to strike a six-month low of 1.5030 on Friday afternoon thanks to a spectacular US non-farm payrolls report. Markets were primed for an acceleration from 142,000 to 180,000 in October but the actual result saw an explosion of 271,000 jobs, which led investors to price-in a 70% probability of a rate rise from the Fed in December.
The upsurge in US rate hike bets at the tail-end of last week’s session makes it quite difficult to see the Pound mount a recovery this week.
UK unemployment is tipped to remain at a seven-year low of 5.4% on Wednesday and wages are expected to inch forward from 3.0% to 3.2% but with BoE rate hike bets focussed on the second half of 2016 the Pound is unlikely to strengthen versus the ‘Greenback’.
The only other ecostat to look out for is Friday’s US retail sales report, which is tipped to rise from 0.1% to 0.3% and should be enough to keep December rate hike hopes alive.
It will be interesting to see whether Sterling can remain above psychological support at 1.5000 but there appears to be little desire from traders to push the Pound higher.
Heads Up
Summary of major upcoming data releases that we think may move the market.