Anticipation for PMIs Keeps Pound to US Dollar (GBP/USD) Exchange Rate High

Pound to US Dollar Exchange Rate Holds as Bank of England (BoE) Jitters Lighten

Investors have been buying the Pound (GBP) again since Tuesday, and so far the Pound Sterling to US Dollar (GBP/USD) exchange rate has sustained notable gains. Investors are now eagerly awaiting tomorrow’s data.

Since opening this week at the interbank level of 1.30, GBP/USD has been trending largely with an upside bias.

GBP/USD saw a jump in demand on Tuesday and a bigger jump yesterday. At the time of writing, GBP/USD is trending nearer an interbank fortnight high of 1.31.

The US Dollar (USD) lacks the drive to push a steady Sterling lower again. Even as Bank of England (BoE) rate cut bets persist, the Pound outlook is currently seen as optimistic overall.

Hopes for Better Outlook Support Pound (GBP) Exchange Rates

Despite lingering Bank of England (BoE) interest rate cut bets, the Pound (GBP) has seen a surge in demand this week.

Tuesday’s UK job market report came in with a larger amount of new jobs than expected, as well as stronger wage growth including bonuses.

On top of this, yesterday’s retail and confidence stats from the Confederation of British Industry (CBI) were also better than forecast. This boosted hopes that Britain’s economic activity could rebound this year.

Amid these hopes, analysts predict that even if the BoE cuts interest rates soon, it will be in anticipation of an eventual rebound. According to Lee Hardman, Currency Strategist at MUFG:

‘If the BOE are to cut interest rates by the end of this month, it’s seen more as a risk management move to try and solidify expectations for a rebound in growth going forward,

Even if you say it is potentially a temporary respite, I don’t see Brexit risks flaring back up again any time soon,

That is a key component as well on why the Pound is stabilizing at higher levels.’

US Dollar (USD) Exchange Rates Supported by Data but Lacking in Drive

The latest US data continues to support the US Dollar (USD) and limit the currency’s losses this week. Yesterday’s US existing home sales results came in much higher than forecast.

However, the currency is overall struggling to keep climbing or regain losses, following last week’s strong rebound. Various global factors are weighing on the US Dollar, preventing it from registering further gains.

The US Dollar is a safe haven currency, but it has also been correlated to China trade news amid the US-China trade war.

Amid a coronavirus spreading in China and concerns that it could impact travel or trade in and out of the country, investors have been selling the US Dollar in favour of more traditional safe haven rivals like the Japanese Yen (JPY).

Pound to US Dollar (GBP/USD) Exchange Rate Anticipates PMI Projections

The Pound (GBP) is holding its ground on recent UK data, but the Pound to US Dollar (GBP/USD) exchange rate could still see another sharp shift in movement before the end of the week.

Friday will see the publication of what could potentially be the week’s most influential datasets: Markit’s PMI projections for January.

Both UK and US figures will be published throughout the day. US PMIs could cause some US Dollar (USD) movement if they surprise investors.

Britain’s stats are most likely to have an impact on exchange rates though. They will give investors a better idea of if the Bank of England (BoE) will be under pressure to cut UK interest rates or not.

Poor UK data will worsen concerns that Britain’s economy is still seeing poor performance at the beginning of 2020. This would place additional pressure for the BoE to ease monetary policy.

Stronger PMIs, on the other hand, would boost hopes of an economic rebound in 2020. This would cause BoE rate cut bets to fade further and the Pound to US Dollar (GBP/USD) exchange rate would end the week much stronger.

Josh Jeffery

Contact Josh Jeffery


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