The Pound to US Dollar exchange rate slipped below psychological support last week in reaction to a stream of soft UK ecostats.
Sterling Love Affair Ends On Valentine’s Day
After putting in a solid performance to start the week Sterling fell out of favour with investors last Tuesday as UK inflation printed at 1.8%, underwhelming expectations of 1.9%. The US Dollar meanwhile, earned the affection of its courters following a hawkish statement from Federal Reserve Chairwoman Janet Yellen. The Fed President said it would be ‘unwise’ to wait too long before hiking rates again, which spurred bets of a near term rate rise in the US.
Having fallen through psychological support at 1.25 on Tuesday, ‘Cable’ was unable to breach that level on Wednesday. British unemployment remained at an 11-year low of 4.8% but demand for the Pound was compromised by news that earnings slowed from 2.8% to 2.6%. The downtick in wages brought real wage growth (wages minus inflation) down to a two-year low of 1.4%. Meanwhile demand for the ‘Greenback’ was boosted by a better-than-expected US CPI print of 2.5% – a five-year high for the figure.
Worrying Retail Trend Hurts GBP/USD
GBP/USD lost more ground on Friday when UK retail sales came in at -0.2% in January. The unexpected decline meant that sales volumes had contracted for three months on the trot for the first time since the year 2000. This underlying trend of slowing consumer spending was interpreted as bearish for the Pound because household spending has been one of the primary drivers behind the UK economy in recent years.
Can ‘Cable’ Break Above 1.25 Resistance?
Sterling appears to be heading back towards psychological resistance this week but it will be interesting to see whether the Pound can sustain itself above 1.25.
Key releases to look out for include the UK fourth quarter GDP report, which is tipped to see growth remain at 0.6%, and the US manufacturing PMI, which is liable to show sturdy output of around 55.2.
Also on the agenda is a speech from BoE Governor Mark Carney. The Pound could gain support if Carney talks up rising UK inflation prospects, but Sterling could slide if the Governor focusses on the recent slide in real wage growth.