Sterling softened by around half a cent against the US Dollar last week thanks to a trio of encouraging US ecostats.
UK Data Cools Ahead of Referendum
The Pound performed well last Tuesday despite data showing that the UK trade deficit widened to its worst level since the financial crisis of 2008. The deficit stretched to -£11.2 billion but analysts were relieved that it beat expectations of -£11.5 billion and this supported Sterling.
On Wednesday the Pound was treated to more downbeat domestic data as production shrank -0.4%, marking the factory sector’s third technical recession since the financial crisis. Consequentially, British growth is likely to cool from 0.4% to 0.3% in the second quarter of the year.
The Bank of England’s ‘Super Thursday’ trio of announcements gave Sterling a little bit of a boost because it featured a unanimous 9-0 vote against cutting interest rates. This boosted the Pound because analysts had expected some of the more dovish members to vote to ease policy ahead of next month’s EU referendum. However, the ‘Greenback’ rallied during the afternoon in response to some hawkish noises from Federal Reserve officials, with some suggesting that underlying consumer prices are rising fast enough to consider hiking rates again in the near term.
GBP/USD Down on Sturdy US Data
Sterling slid towards 1.43 on Friday, shrinking by around a cent, thanks to a trio of positive US ecostats. The US Dollar rallied as retail sales jumped to a yearly high of 1.3%, business inventories doubled forecasts of 0.2% with a score of 0.4% and investor sentiment rose unexpectedly from 89.5 to a 10-month high of 95.8.
Week Ahead
The Pound to US Dollar exchange rate is likely to trade within a relatively tight range this week as both currencies could benefit from mildly optimistic data releases.
Sterling could garner support if UK CPI remains at 0.5% while the ‘Greenback’ stands to gain if US inflation rises from 0.9% to 1.1%, as expected. However, the Pound could tick higher if predictions for UK wage growth to rise to 2.3% and US earnings to remain close to 1.1% prove accurate.
The Federal Reserve minutes report on Wednesday evening could prove interesting if it features strong desire from some policymakers to raise rates next month. However, GBP/USD should remain relatively insensitive to hawkish rhetoric because markets are fairly confident that the US central bank will wait on the sidelines ahead of the potentially destabilising ‘Brexit’ referendum.