Sterling touched a six-week high versus the US Dollar last week but sentiment appears to have soured somewhat at the start of this week’s session.
Supreme Court Rules Parliament Must Vote On Brexit
GBP/USD ticked higher at the start of last week’s session ahead of the UK Supreme Court’s judgement on Brexit. The judges ruled that government would need parliamentary approval before triggering Article 50 of the Lisbon Treaty, however, Prime Minister Theresa May is likely to gain ratification in time to maintain her March schedule because opposition leader Jeremy Corbyn has told Labour MPs not to stand in the way of the referendum result.
Data in the US showed that manufacturing output ramped up in January thanks to the fastest rise in new work for over two years. If the sector continues accelerating on hope of investment boosts from President Trump then it could benefit the ‘Greenback’ as Federal Reserve rate hike bets proliferate.
Trump Bump In Doubt
However, demand for the US Dollar suffered a little bit last week in response to Trump’s decision to focus his early Presidential attention on protectionist policies and immigration, which analysts fear could harm the global economy, rather than his campaign pledges to invest huge amounts of funds in the domestic economy, which is likely to prompt a spike in domestic output. These isolationist concerns drove ‘Cable’ to a six-week high just under 1.27.
Fourth quarter UK GDP beat forecasts of 0.5% with a score of 0.6% on Thursday but the Pound fell back towards 1.25 at the end of the week.
Week Ahead
Over the weekend US President Donald Trump announced a ban on US travel for citizens of six Muslim countries. The decision sparked outrage both at home and abroad, but so far it hasn’t had a massive impact on financial markets. However, there is potential for the controversial policy to come into play if analysts’ fear it could aggravate geopolitical conflicts, which would most likely hamper risk appetite and subsequently weigh on GBP/USD.
Both the Fed and the Bank of England are due to announce policy decisions this week. There appears to be more room for the ‘Greenback’ to rally because the Fed intends to raise rates around three times in 2017. Any hints that rates could rise imminently would bolster the appeal of the US Dollar, while the BoE is more likely to strike a neutral tone and play down talk of tightening policy. Having said this, GBP/USD could easily catch a bid if the Fed were to shock markets with a dovish message or the BoE were to strike an unexpectedly hawkish tone.