Sterling rallied by around three cents against the US Dollar at one point last week but has since slipped back under the pressure of profit-taking stances.
UK Inflation Cools
GBP/USD started last week’s session close to 1.43 and Sterling managed to rally towards 1.44 even though UK inflation came in at 0.3% compared to forecasts of 0.5%. The surprise slide in British CPI was triggered by a -14% dip in airfares as flight companies slashed prices following the Easter break.
In the US it was reported that consumer prices accelerated from 0.9% to 1.1% and that industrial production rebounded unexpectedly from -0.9% to +0.7%. However, the sturdy US ecostats were not enough to weigh GBP/USD down.
Sterling Surges on Reduced ‘Brexit’ Bets
Wednesday’s session saw the Pound to US Dollar exchange rate soar two cents to 1.46 as markets reacted positively to polling data from IPSOS MORI suggesting that most Britons would vote against ‘Brexit’ at next month’s EU referendum. The poll gave the remain camp an 18-point lead over the leave campaign and ‘Brexit’ bets were reduced accordingly.
A separate report showed that employment in the UK struck its highest level since records began in 1971, while unemployment remained at 5.1% and wage growth inched forward from 1.9% to 2.0%.
During the evening the Federal Reserve released its latest minutes report, which saw policymakers talk up the possibility of hiking rates next month. However, the US Dollar did not rally strongly in response to the hawkish rhetoric because analysts still expect the US central bank to wait until after the ‘Brexit’ referendum before it risks unsettling financial markets with tighter monetary policy.
GBP/USD Hits Fortnightly High Before Succumbing to Profit-taking
The Pound to US Dollar exchange rate rallied to a fortnightly high on Thursday as British retail sales smashed economists’ expectations of 2.0% with a bumper print of 4.2% in April.
However, demand for the Pound softened on Friday as markets looked to lock-in profit following Sterling’s recent appreciation. Subsequently, ‘Cable’ tumbled by just over a cent and is now below the 1.45 mark it crossed last week.
Week Ahead
Data this week is anticipated to confirm that the British economy grew at an annualised pace of 2.1% in the first quarter, while US annualised GDP is tipped to be upgraded from 0.5% to 0.9%. However, the UK’s speedier growth score is unlikely to feed into increased demand for the Pound.
Fairly important US domestic indicators such as investor confidence, durables goods and private sector output could have an impact on GBP/USD if they beat analysts’ expectations. But the likelihood is that ‘Cable’ will trade in a fairly tight range this week, as investors mull over the latest news in the run-up to next month’s ‘Brexit’ referendum.