Foreign Currency Market Update – GBP / USD Update
Sterling proved surprisingly resilient to the bullish US Dollar’s advances last week and ‘Cable’ actually managed to rally by nearly two cents.
GBP/USD rose from around 1.5040 to 1.5120 on Monday as profit-taking stances became attractive to traders following the US Dollar’s 400 pip appreciation the previous week.
The Pound climbed higher on Tuesday before striking 1.5240 on Wednesday morning as British unemployment plunged to a new seven-year low of 5.3%. Investors were slightly irked by a lower-than-anticipated wage growth score of 3.0%, which undershot expectations of 3.2%, but GBP/USD maintained demand on news that the employment rate had risen to an all-time high of 73.7%.
GBP/USD fluctuated in a tight range around the 1.5200 mark on Thursday as a notoriously dovish Federal Reserve policymaker talked down the prospect of higher rates this year. However, Charles Evans is known to be in the minority group of ultra doves at the central bank and his word alone is unlikely to persuade many other members of the rate setting committee to vote against raising rates in December.
The Pound strengthened to around 1.5240 on Friday when US retail sales data disappointed at 0.1% compared to forecasts of 0.3%. However, the ‘Greenback’ came back into demand at the beginning of this week’s session due to risk aversion trends related to the deadly terrorist attacks that took place in Paris on Friday.
The week ahead has the potential for further ‘Greenback’ appreciation if Fed rate hike bets and risk trends continue to drive investment in the safe-haven US Dollar.
UK inflation is set to print at -0.1% on Tuesday but the American figure is predicted to remain at 0.1%, which could provide markets with an opportunity to begin sending GBP/USD lower.
Wednesday’s Fed minutes report is likely to reveal a hawkish consensus of policymakers ready to begin raising rates in December if domestic data remains sturdy. In light of October’s glittering labour market report, which was released after the central bank meeting took place, data does appear sturdy and subsequently we could see another spike in Fed rate hike bets.
As long as markets continue to bet on a piece of monetary tightening from the Fed in December then there is a real possibility that Sterling could weaken towards psychological support at 1.5000 against the US Dollar over the next few days and weeks.
Heads Up
Summary of major upcoming data releases that we think may move the market.