After a strong start, the Pound to US Dollar exchange rate settled for gains of just half a cent last week.
Sterling Strengthened Last Week
Sterling registered gains of over 100 pips last Monday as demand for the US Dollar continued to slide following remarks from the Federal Reserve the week previously suggesting that there was very little hope of a near term interest rate hike.
The Pound rallied by another 100 pips on Tuesday morning, rising to a fortnightly high, as British inflation data printed at 0.5%, up from 0.3% and better than analysts’ forecasts of 0.4%. However, ‘Cable’ gave back most of its gains during the afternoon in reaction to a new poll from ICM suggesting that British sentiment was shifting to favour a future outside of the European Union. The opinion poll gave the LEAVE camp a three-point lead over the REMAIN camp and this hampered UK sentiment and prompted another round of ‘Brexit’ bets from investors.
BoE Holds Rates… Again
GBP/USD lost ground on Wednesday even though data from the United States showed that retail sales slid -0.3% in March.
Thursday saw the pair trade rather flatly as the Bank of England held rates for the 85th month in a row and US inflation slowed from 1.0% to 0.9%.
Federal Reserve rate hike bets continued to soften on Friday when US industrial production printed at -0.6% and US consumer confidence dipped from 91.0 to 89.7. The downbeat results mean that most investors do not expect the Fed to resume its hiking cycle until at least the third quarter of this year.
Week Ahead
Looking ahead to this week’s data releases, there are a couple that catch the eye.
Wednesday’s UK labour market report looks to be the event with the most market-moving potential. Unemployment is likely to remain at 5.1% but investors are hoping for an acceleration in wage growth from 2.1% to 2.3%, which could give Sterling a little bit of a boost. If the earnings figure disappoints, demand is liable to dip.
Across the pond in the States US manufacturing activity is set to rise from 51.5 to 52.0, which could settle investor nerves. However, if the factory output report disappoints then it could add to the negative sentiment from last week’s poor industrial production and consumer confidence prints
Heads Up
Summary of major upcoming data releases that we think may move the market.