The Pound rallied by over four cents against the US Dollar at one point last week, however, Sterling was unable to hold onto its gains and came crashing down when global risk sentiment and EU membership bets deteriorated.
GBP/USD Shoots Higher
Sterling shot higher by around two cents against the ‘Greenback’ last Monday as UK manufacturing output printed at a three-month high of 52.9 while the ISM US factory output gauge came in at 48.2. Analysts were especially concerned with the employment sub-index of the report, which fell to a six-year low of 45.9.
The Pound remained buoyant on Tuesday as hopes of Britain remaining in the European Union were boosted by news of a draft deal between UK Prime Minister David Cameron and European Council President Donald Tusk.
‘Cable’ resumed its uptrend on Wednesday, rising by over two cents to a monthly high north of 1.46, in reaction to some better-than-anticipated PMI data. The dominant services PMI, which accounts for over 70% of the UK economy, printed at 55.6 for January, which analysts said pointed towards an acceleration of GDP growth from 0.5% to 0.6% at the start of 2016.
Sterling struck another monthly high on Thursday but demand began to deteriorate during the afternoon following a dovish set of announcements from the Bank of England. Governor Carney stated that rates were on track to rise rather than fall but his cautious assessment of the domestic economy caused most analysts to predict that the first rate hike may not come until mid 2018.
The Governor reduced growth forecasts for this year and the next and predicted that inflation would remain below 1.0% during 2016. Investors were also concerned by Ian McCafferty’s decision to retract his vote for higher rates after months of being the lone dissenter in the nine-person MPC.
Mixed Bag of Labour Data Boosts US Dollar
Demand for ‘Cable’ reduced significantly on Friday following the highly anticipated US non-farm payroll report. The headline NFP print actually disappointed at 151,000, down from estimates of 190,000. However, investors were cheered by a surprise dip in unemployment to an eight-year low of 4.9% and a bonus acceleration in wage growth from 2.2% to 2.5%.
The upbeat elements of the labour market report caused speculative investors to remain hopeful of further interest rate hikes from the Federal Reserve in 2016 and this dragged GBP/USD lower by over a cent.
The Pound to US Dollar exchange rate extended losses over the weekend as risk aversion trends swelled and YouGov reported that 9% more Britons want to leave the EU than remain in the 28-nation bloc.
Janet Explains All
This week’s economic calendar is not choc-a-bloc with significant data, however, there is one event that could shape the week’s trading patterns: Fed President Janet Yellen’s testimony to Congress on Wednesday.
Following Friday’s mixed bag of labour data investors will be looking to Yellen for clues of future policy decisions. If the Fed President chooses to focus on global headwinds and domestic slowdowns then the ‘Greenback’ could pull back and ‘Cable’ could rally towards 1.46. However, if Yellen opts to focus on the sliding jobless rate and an expected uptick in average earnings then GBP/USD could start sliding back towards 1.40.
Heads Up
Summary of major upcoming data releases that we think may move the market.