‘Cable’ slid by around half a cent last week as Bank of England stimulus bets weighed on the Pound.
US Manufacturing Output Lifts Dollar
GBP/USD softened at the start of last week’s session as Federal Reserve rate hike bets inched higher in reaction to a yearly high US manufacturing PMI print of 53.2.
Demand for Sterling, on the other hand, was hurt by comments from UK Chancellor Phillip Hammond, which appeared to leave the door open to further bouts of QE. Hammond said that the Treasury had never refused a BoE request for asset purchases and suggested that it never would. Later in the day BoE Governor Mark Carney defended the bank’s decision to launch a new round of QE and cut interest rates in August, but Carney did not say anything to raise bets of near term new stimulus.
‘Hard Brexit’ Fears Recede Slightly
The Pound rallied by around half a cent versus the US Dollar on Wednesday in response to a statement from junior ‘Brexit’ minister David Jones suggesting that both houses of parliament would get the chance to examine the government’s ‘Brexit’ trade agreement. The news eased concerns that the government’s desire to sacrifice certain trade benefits in return for tighter controls on immigration could lead to a weaker long term economic future for the UK.
In the US it was reported that service sector output jumped from 52.3 to 54.8 in October.
Thursday saw UK GDP print impressively at 0.5%, beating forecasts of 0.3%. However, Sterling failed to make any lasting gains versus the US Dollar because investors do not expect the domestic economy to remain this strong over the next few years.
GBP/USD tumbled further on Friday when US GDP beat expectations of 2.6% with a robust print of 2.9%. A 10% jump in exports was one of the largest contributors to the upbeat score.
Week Ahead
There are a number of important ecostats to look out for this week, including a trio of UK PMI reports, the US non-farm payroll report and announcements on monetary policy from both the BoE and the Fed.
With UK PMIs predicted to have decelerated slightly in October and US jobs growth tipped to rise from 156,000 to 175,000, it is entirely possible that we could see Sterling lose ground to the ‘Greenback’.
The BoE decision is probably not going to see a change of policy, but volatility can be expected during the inflation report as any hints at future policy direction could lead to a bit of investor repositioning.
Markets have priced in just a 19% chance of a Fed rate hike this month, but expectations of a December hike are settled around the 69% mark, which should drive demand for the US Dollar so long as the Fed does not opt to talk down the possibility of a 2016 piece of tightening.