Sterling began the week with an 80-pip gain against the US Dollar, climbing from just below 1.42 to just shy of 1.43 as Federal Reserve rate hike expectations slid on dovish remarks from policymakers.
GBP/USD continued to rise on Tuesday thanks to a damming duo of US data: housing starts tumbled -8.8% and building permits plunged -7.7%.
The Pound traded close to psychological resistance at 1.44 on Wednesday, but failed to settle above that level as UK wage growth came in weaker-than-anticipated. Analysts had hoped for a score of 2.3% but the data showed that wages slowed from 2.1% to 1.8% in February and this tempered demand for Sterling.
‘Cable’ grappled with resistance again on Thursday as UK retail sales slumped -1.3%.
However, demand for the Pound surged on Friday and GBP/USD briefly rallied above 1.45 when markets reopened this week. The catalyst was a report from Number Crunching Politics (NCP) suggesting that there is a just 20% chance of Britons voting to leave the EU in June’s referendum. ‘Brexit’ bets were also slashed in reaction to comments made by US President Barack Obama suggesting that it would take a decade for Britain to agree a new trade deal with America if it left the EU.
Week Ahead
With Sterling currently trading at its highest level against the US Dollar since the middle of February it is an attractive time to buy GBP/USD.
Over the next week the pair could find itself sliding if UK Q1 GDP comes in below forecasts of 0.4% and the Federal Reserve strikes a hawkish tone at its April meeting.
However, there is potential for the Pound to hold onto its gains and appreciate further if the UK growth numbers impress and the Fed fails to ignite new rate hike bets. At the moment investors do not expect the US central bank to raise rates until the start of the third quarter.
Heads Up
Summary of major upcoming data releases that we think may move the market.