The Pound remained on the front-foot versus the US Dollar last week, rising to new eight-month highs as UK data printed positively.
UK Private Sector Beats Expectations
All three of last week’s UK private sector reports for April came in higher than markets had anticipated. The upbeat reports maintained optimism that the British economy could perform well this year, despite the impact of last June’s Brexit referendum.
With import prices rising as a result of the weak Pound, consumer spending trends slowed at the start of the year, which led to a deceleration in GDP output. First quarter UK growth came in at 0.3%, much less than the 0.7% registered in Q4 2016.
However, with UK manufacturing hitting a three-year high of 57.3, construction activity expanding at a four-month high of 53.1 and the dominant service sector performing at its second highest level since 2015 with a sanguine score of 55.8, there are still those who believe that Britain can weather the Brexit storm.
GBP/USD Hits 8-Month High
Sterling appreciated by around half a cent against the US Dollar last week, striking its highest level since last September in the process. Technical traders noted that the Pound’s recent rallies had the potential to continue because the ‘Greenback’ had struggled to strengthen on positive economic news.
Last week the Federal Reserve played down talk of a cooling US economy and appeared to pave the way to another rate hike in June. This was followed by a 10-year low US unemployment rate score of 4.4% and a better-than-anticipated non-farm payroll increase of 211,000. If the US Dollar can’t rally against the Pound on these kind of positive signals it suggests markets could be willing to take ‘Cable’ even higher.
Week Ahead
The biggest event to keep an eye on in terms of GBP/USD movement this week is the ‘Super Thursday’ cluster of announcements from the Bank of England.
The BoE is widely expected to leave interest rates and quantitative easing options on hold, however, the rising inflationary outlook could prompt a hawkish shift among some policymakers. If the statement shows that bank officials are moving towards a time when UK rates could be raised then Sterling could break through psychological resistance and strike new eight-month highs.
On the other hand, a clear dovish message could drive the Pound to US Dollar exchange rate lower and extinguish Sterling’s recent rallies, which have seen GBP/USD appreciate by around five cents since midway through January.