The Pound to US Dollar exchange rate rose by around half a cent last week to strike its highest level for over a fortnight in reaction to a disappointing set of US labour market figures.
Tropical Storm Harvey Damage Weighs on US Dollar Sentiment
Demand for the US Dollar remained soft at the start of last week’s session due to receding Federal Reserve rate hike bets. Fed Chairwoman Janet Yellen’s recent decision not to discuss monetary policy at the Jackson Hole symposium was seen as a bearish indicator for the ‘Greenback’ and economic sentiment was dealt a further blow by the damage caused by Tropical Storm Harvey on the Gulf Coast.
‘Cable’ remained flat during Wednesday’s session as investors reacted in a fairly subdued fashion to data showing that annualised US GDP growth accelerated from 1.2% to 3.0% in the second quarter. The figure beat expectations of 2.7%, however, the US Dollar did not rally strongly due to concerns that unsustainable consumer spending trends would likely be reversed in the second half of the year.
GBP/USD held steady again on Thursday. The Pound was hurt by comments from EU chief negotiator Michel Barnier suggesting that no ‘decisive progress’ had been made in the Brexit talks. The ‘Greenback’, meanwhile was dragged lower by remarks from US Treasury Secretary Steve Mnuchin suggesting that ‘as it relates to trade, having a weaker Dollar is somewhat better for us’.
US NFP Report Disappoints
Sterling surged to a two-week high against the US Dollar on Friday afternoon following a disappointing US non-farm payroll report. The labour market indicator showed that jobs growth decelerated from 189,000 to 156,000 in August, which brought unemployment up from 4.3% to 4.4%. Wage growth disappointed estimates of 2.6%, with a score of 2.5%. The lacklustre figures led to a further softening of Fed rate hike bets.
Demand for ‘Cable’ was also boosted by some better-than-anticipated manufacturing data, which came in at a four-month high of 56.9, beating forecasts of 55.0, in August.
Week Ahead
The Pound could register more gains versus the ‘Greenback’ this week if UK service sector data points to sturdy domestic growth in August. The report is tipped to come in at 53.5 but anything above 54.0 could give Sterling a boost.
GBP/USD remains below key psychological resistance and it could take a significant shift in central bank sentiment to drive Sterling above that level. The UK services PMI alone is unlikely to provide this, so we may need a hawkish Bank of England (BoE) statement or dovish Fed rhetoric to drive ‘Cable’ through this barrier.