The Pound to US Dollar exchange rate recently reached its highest level since the first week of 2016. However, GBP/USD has fallen back during today’s session in response to weak British data.
Reduced ‘Brexit’ Bets Boost Pound
Sterling rallied to a two-month high just north of 1.46 last Monday as the Pound absorbed funds from traders looking to reevaluate the prospects of Britain leaving the EU in June. Polling data had pointed to an increasingly close vote, although a new poll from NCP suggested the actual chance of a victory for Vote Leave was only around 20%. Sterling pairs surged following the publication of NCP’s report.
GBP/USD continued to rally on Tuesday as US consumer confidence slid from 96.2 to 94.2 and durable goods orders came in at 0.8% – much weaker than analysts’ predictions of 1.9%.
On Wednesday ‘Cable’ fluctuated in a tight range around the 1.46 mark. British GDP data for the first quarter showed an expansion of 0.4%, which matched market expectations but was markedly slower than Q4’s 0.6% score. During the evening, Federal Reserve policymakers attempted to leave the door open to a rate hike in June but investors were not convinced.
GBP/USD Rallies on Soft US GDP
Sterling jumped higher by 70 pips on Thursday when weak growth data confirmed investors’ suspicion that a June rate hike was very unlikely. US GDP plummeted from an annualised 1.5% to an annualised 0.5% in the first quarter of the year and subsequently markets cut the probability of a June hike to just 10%.
Soft US consumer confidence numbers hurt the ‘Greenback’ on Friday, when the University of Michigan’s confidence index shrunk from 89.7 to 89.0 and GBP/USD strengthened further on Monday thanks to a downbeat US ISM manufacturing score of 50.8.
‘Cable’ rallied towards 1.48 yesterday, reaching its highest level since the first week of 2016, but Sterling has since plunged -150 pips in reaction to data showing that British manufacturing activity contracted for the first time in three years during April.
Looking Ahead
The main events to look out for this week are the UK service sector report and the US labour market report.
The Pound should maintain an exchange rate above 1.46 if the services PMI prints in line with forecasts of 53.5, but anything below that could prompt another period of selling pressure.
The US labour market report is tipped to see unemployment remain at 5.0% and non-farm payrolls increase 200,000. These are decent numbers, but not enough to raise the prospect of a June rate hike. However, the average earnings figure is expected to rise to 2.4% and this could bolster bets of higher rates.
It is entirely possible that GBP/USD could trade between 1.46-1.48 for most of this week’s session.
Heads Up
Summary of major upcoming data releases that we think may move the market.