Pound Sterling to US Dollar Foreign Currency Exchange Rate Forecast – Sterling recovers May’s earlier losses…

Currency

By Jon Beddell

Foreign Currency Market Update – GBP / USD Update

Sterling recovers May's earlier losses

Sterling reversed its recent losing streak last week, adding over 3 cents. The big UK data item was the first revision to first quarter GDP. Growth was confirmed at the 0.5% originally estimated (1.8% annual) which was met with a sense of relief. In the midst of that relief the market even managed to ignore a surprise 7.1% decline in business investment in the first quarter when it had been expecting a 2.4% increase. Somehow Sterling still managed to put in a strong performance on the day.

It was a rough week for the Dollar. Figures on durable goods orders showed a larger than expected 3.6% decline for April and the Dollar lost a cent. Then the revision to first quarter GDP came out. Markets had been expecting the original 1.8% estimate to be revised up to 2.1%. When it came in at 1.8% investors were less than impressed, driving the US currency down by another cent. Friday’s lost cent coincided with the release of data showing that pending home sales fell 11.6% on the month. Although this is a second tier data item it seemed to be taken as the final straw in what was already shaping up to be a bad week.

The recent UK inflation reading at 4.5% (5.2% RPI) is continuing to generate background noise with some MPC members making hawkish comments, helping to reaffirm the potential for interest rate hikes at some point if the economy can just hold on to its shallow growth trajectory for a few more months.

After a bad start to May Sterling has largely redeemed itself over the last week. The Pound bounced strongly from trend support, adding credibility to the uptrend that has been in place since the May 2010 low. We now have a good chance of exceeding the recent high at 1.6750. We would only become concerned if the Pound breaks below last week’s established low at 1.6080.

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