Sterling is currently trading at a seven-year low against the US Dollar due to enhanced ‘Brexit’ fears following London Mayor Boris Johnson’s announcement that he is supporting the ‘OUT’ camp in the June 23 EU referendum.
GBP/USD Slides as Wage Growth Slows
GBP/USD fell below 1.45 last Monday and, despite a one-year high UK CPI print, continued to slide on Tuesday. British inflation rose minimally from 0.2% to 0.3% in January but the yearly high score was not enough to impact Bank of England rate hike bets, which point to stagnant rates until late 2019.
The Pound to US Dollar exchange rate remained close to technical support at 1.43 through Wednesday and Thursday as UK unemployment printed at a near-decade low of 5.1% but wage growth slowed to a 10-month low of 1.9%. The Federal Reserve’s latest minutes report showed that policymakers were reluctant to raise rates again anytime soon.
Retail Offers Glimmer of Hope
The Pound picked up support on Thursday afternoon in response to comments from BoE policymaker John Cunliffe suggesting that markets were overly pessimistic in their estimates of flat rates until late 2019. But Cunliffe’s comments only had a limited impact on GBP/USD.
Demand for Sterling ticked up on Friday due to a couple of positive January data points. UK retail sales beat expectations of 0.7% with a robust 2.3% score and the British trade deficit shrank by £11.2 billion thanks to an eight-year high increase in self-assessment tax returns.
Boris Slams Sterling
The Pound to US Dollar exchange rate is currently trading at a seven-year low, marking a four cent depreciation over the past week, in reaction to London Mayor Boris Johnson’s decision to publicly throw his support behind the ‘Brexit’ camp. Sterling nosedived nearly two cents in response to the announcement because analysts are worried that the influential Mayor could sway public opinion in favour of leaving the 28-nation bloc.
Data this week is expected to show: that US consumer confidence slowed from 98.1 to 97.3 in February; confirm that British GDP advanced 0.5% in the fourth quarter; reveal that US durable goods orders grew 2.5% in January; and see US fourth quarter growth revised down from 0.7% to 0.4%.
The data set appears to favour a revival in ‘Cable’ but it is entirely possible that investors will ignore the ecostats and focus their bets on the upcoming ‘Brexit’ debate. Even at a seven-year low GBP/USD looks fragile.
Heads Up
Summary of major upcoming data releases that we think may move the market.