‘Cable’ weakened by around two cents during last week’s session as ‘Brexit’ bets surged but Sterling clawed back most of its losses thanks to dovish remarks from the Federal Reserve.
GBP/USD Plagued by Downbeat Data
GBP/USD rallied by around 60 pips last Monday thanks to a -1.7% plunge in US factory orders and a -2.8% contraction in US durable goods orders.
Tuesday saw UK service sector PMI beat analysts’ expectations of 53.5 with a slightly better score of 53.7. However, demand for Sterling still trickled lower because the composite PMI of private sector performance slumped to its lowest quarterly level for three years.
‘Brexit’ Fears Send Pound Lower
The Pound to US Dollar exchange rate tumbled over a cent on Wednesday morning as markets reacted to a new opinion poll from ICM giving the REMAIN camp a slender 44% to 43% lead over the LEAVE camp ahead of June’s crucial EU referendum. The tighter-than-expected poll shocked traders who had only given the LEAVE camp a 33% chance of victory and consequently the Pound suffered as ‘Brexit’ bets proliferated.
Later in the evening, however, GBP/USD clawed back most of its losses thanks to a dovish minutes report from the Federal Reserve. Fed policymakers noted that a premature rise in borrowing costs could stifle the global economic recovery and send out the wrong message to financial markets. Although the US central bank currently plans to raise rates by 50 basis points by the end of the year, most analysts do not expect any further rate hikes until autumn at the earliest.
GBP/USD ticked lower by half a cent on Thursday due to data from the Office for National Statistics (ONS) indicating that UK productivity fell at the fastest rate since 2008 (-1.2%) in the final three months of last year.
Friday saw the Pound rally despite a disappointing UK manufacturing production print of -1.8% and forecast from the National Institute of Economic and Social Research (NIESR) suggesting that UK economic growth halved from 0.6% to 0.3% in the first three months of the year.
Week Ahead
Sterling has rallied by almost 150 pips at the start of this week’s session and it will be interesting to see whether GBP/USD maintains this bullish momentum throughout the week.
The key ecostats to look out for are the UK and US consumer price index reports. The UK score of 0.4% is liable to underwhelm the US print of 1.1%, however, demand for the ‘Greenback’ will probably be more sensitive to a slew of speeches from the Federal Reserve policymakers.
If Fed officials continue to talk down near term rate hike bets then GBP/USD could rally; if policymakers speak of the positives of tighter borrowing costs then ‘Cable’ could easily depreciate.
Heads Up
Summary of major upcoming data releases that we think may move the market.