The Pound to US Dollar exchange rate shed around three cents to strike a string of fresh five-and-a-half-year lows last week.
Sterling slid from around 1.4600 to a new multi-year low of 1.4440 during the first two days of last week’s session as downbeat industrial production numbers weighed on demand for the UK tender. British industrial output fell -0.7% while manufacturing contracted -0.4%, which compounded fears that the recovery is floundering and subsequently led to a deluge of softer Bank of England rate hike bets.
‘Cable’ softened minimally to just over 1.44 on Wednesday evening as concerns surrounding a potential in/out EU referendum spooked holders of the Pound.
The BoE held rates at 0.50% for the 82nd month in a row on Thursday but Sterling suffered as cautious remarks prompted traders to bet that the central bank would not raise interest rates until after the proposed EU vote.
And support collapsed on Friday sending GBP/USD crashing down from 1.44 to 1.42 as risk averse sell-offs in emerging markets caused investors to send their funds on flights of safety across the Atlantic. The Pound fell to a new five-and-a-half-year low against the safe haven ‘Greenback’ as ‘Brexit’ fears reduced the appeal of investments in Britain.
After suffering huge losses there is potential for the Pound to recover slightly this week if data prints favourably, however, the potential exists for GBP/USD to fall further if markets remain gripped by risk aversion.
British inflation is tipped to rise from 0.1% to 0.2% on Tuesday but, with US CPI expected to rise to 0.8%, there is little scope for Sterling gains. UK unemployment is likely to remain at a seven-year low of 5.2% on Wednesday but appetite for the Pound could remain muted if wage growth slows form 2.4% to 2.1% as expected.
Friday’s anticipated 3.5% annual jump in retail sales could bolster the appeal of the Pound but it is difficult to see Sterling making any significant inroads while BoE rate hike bets are being postponed until after the proposed EU referendum.
Heads Up
Summary of major upcoming data releases that we think may move the market.