Sterling rose to its highest level in almost a month against the US Dollar last week as GBP/USD registered a two-cent appreciation.
Volatility in Risk Sentiment
‘Cable’ jumped by around 50 pips last Monday as rallying commodity markets drove risk sentiment up and demand for the safe haven ‘Greenback’ down.
Tuesday saw GBP/USD slip back as Chinese exports slumped -25%, which reversed Monday’s advance in risk sentiment. The Pound was also hurt by Bank of England (BoE) Governor Mark Carney’s suggestion that a ‘Brexit’ was the ‘biggest domestic risk to financial stability’.
Sterling inched higher on Wednesday as UK manufacturing impressed with a 0.7% expansion. But the real action took place on Thursday when markets were shocked by an ultra-loose set of policy announcements from the European Central Bank (ECB).
GBP/USD Close to Monthly High
Funds flew across the Atlantic following the ECB stimulus announcement and GBP/USD managed to rack up a one cent gain and strike a 20-day high as the US Dollar’s safe-haven appeal diminished.
The Pound to US Dollar exchange rate advanced by a further 100+ pips on Friday to strike its highest level in almost a month as the recent ‘Brexit’ related selloff paused.
Fed, UK Budget & BoE on Tap
There are three highly important events to look out for on the economic docket this week: the Federal Reserve’s latest policy decision and commentary, the UK Chancellor George Osborne’s latest Budget and the Bank of England’s latest policy announcement and commentary.
Although GBP/USD has rallied by almost six cents so far in March the Pound’s gains may be about to come to an end. The Fed is unlikely to raise rates at this juncture but many analysts are calling for a hawkish nod towards a 25 basis point rate hike in either June or September of this year.
This contrasts with the BoE, which looks more like striking a cautionary tone ahead of June’s upcoming EU referendum.
George Osborne’s budget is also expected to weigh on Sterling sentiment because spending cuts could be needed to help bring the national deficit down towards the Chancellor’s target. Further reins on spending could easily constrain British growth prospects, especially with the prospect of a ‘Brexit’ looming large over all aspects of business and finance.
Heads Up
Summary of major upcoming data releases that we think may move the market.