The Pound to US Dollar exchange rate rebounded from a seven-year low last week to rally by over 250 pips.
‘Cable’ started last week’s session with a half cent gain as investors reacted to an abysmal fall in US manufacturing output. The Chicago factory output index plunged from 55.6 to 47.6, which gave the Pound some respite after striking a string of fresh seven-year lows the week before.
Poor UK manufacturing figures failed to weaken GBP/USD on Tuesday as Federal Reserve policymaker William Dudley suggested that inflation was unlikely to rise to the 2.0% target this year. The dovish Fed remarks equalled out the 34-month low 50.8 UK manufacturing PMI print.
GBP/USD Rises Through Resistance
Sterling’s recovery continued against the ‘Greenback’ on Wednesday, allowing GBP/USD to settle above key psychological resistance at 1.40. UK construction output sank to a 10-month low of 54.2 and US ADP employment rose 214,000 but profit-taking stances worked in favour of the Pound.
Surprisingly, the Pound managed to strike a 10-day high against the US Dollar on Thursday even though the dominant British service sector posted its worst monthly score in over three years. The services PMI slowed from 55.6 to 52.7 as ‘Brexit’ fears weighed on confidence.
‘Cable’ Responds to Slow NFP Wage Growth
Friday’s key US non-farm payrolls report was seen as a mixed bag of data. The headline job creation figures came in much better-than-anticipated at 242,000 compared to estimates of 193,000. However, sentiment was damaged by an unexpected slowdown in wage growth from 2.5% to 2.2%, which overshadowed the headline print and was interpreted as negative for Fed rate hike bets.
GBP/USD struck a two-week high following the print as investors bet that rates would only rise by 50 basis points this year, down from 100 basis points at the beginning of the year, and that the first hike wouldn’t take place until September at the soonest.
Will the GBP/USD Recovery Fizzle Out?
This week’s economic calendar is looking fairly uninspiring. The UK trade deficit is predicted to swell and British manufacturing is set to underperform: nothing new there then.
The Pound to US Dollar exchange rate began the week with a half cent depreciation and it will be interesting to see whether Sterling cedes more ground over the next few days.
If GBP/USD remains above 1.40 that will send out a signal that investors do not want to drag the Pound down to 30-year lows of 1.35 for the time being. If Sterling slides below 1.40 then 1.35 will come back into focus.
Heads Up
Summary of major upcoming data releases that we think may move the market.