The Pound to US Dollar exchange rate tumbled two cents to monthly lows last week as dovish BoE bets brought UK government debt yields down to record lows.
Dovish BoE Remarks Sting Sterling
‘Cable’ skidded to a monthly low at the start of last week’s session when one of the most hawkish members of the Bank of England’s rate-setting team, Ian McCafferty, said: ‘I believe that more easing is likely to be required’. McCafferty confirmed that further stimulus was in the pipeline if the UK economy does not surpass the BoE’s current projections for economic growth.
The ‘Greenback’ saw demand cool on Wednesday as Federal Reserve rate hike bets lost momentum. However, Sterling was not able to capitalise and demand for GBP/USD remained tepid as UK debt yields plummeted to new record lows. Investors fear that further stimulus will eventually drag profit returns on Sterling-denominated debt even lower and subsequently the Pound could struggle to bounce back above psychological resistance at 1.30 against the US Dollar.
And The Award For The Worst Performing Currency Of 2016 Goes To…
Thursday saw the Royal Institute of Chartered Surveyors (RICS) announce that house price growth in Britain decelerated at its fastest rate in three years during July. The post-‘Brexit’ report put further pressure on the downtrodden Pound.
GBP/USD succumbed to a new monthly low on Friday as traders reacted acerbically to a report showing that construction output shrank 2.2% in June. The Pound’s depreciation on Friday meant that Sterling became the world’s worst performing major currency so far in 2016, an accolade the Argentine Peso will be glad to see the back of.
Post-‘Brexit’ UK Data Due This Week
While underwhelming US retail and consumer confidence reports brought 2016 Fed rate hike expectations down from 55% to 42% last week, the possibility of further aggressive stimulus measures from the BoE means that Sterling still has further to fall versus the US Dollar.
This week’s data is expected to see UK CPI remain at 0.5% and British unemployment print at 4.9%, two decent enough scores that will probably not have a negative impact on Sterling.
However, we could see the Pound sustain losses if Thursday’s UK retail sales report points to a poor month of consumer spending. Analysts predict a score of 0.1% but anything below that could seriously hamper the appeal of the UK currency. Resilient consumer spending is Britain’s best hope of avoiding recession over the next 6-12 months.
US data to look out for includes Tuesday’s predicted 0.9% CPI and 0.2% industrial production prints and Wednesday’s Fed minutes report. The ‘Greenback’ stands to appreciate versus the Pound if the minutes report shows signs of hawkish views among Fed policymakers but the Dollar’s gains could be limited if the central bank statement signals a wait-and-see approach going forward.