The Pound was trading close to 1.5800 last week against the US Dollar.
Foreign Currency Market Update – GBP / USD Update
The Pound was trading close to 1.5800 last week against the US Dollar, as speculation increased that the Federal Open Market Committee may have been close to introducing a third round of quantitative easing measures. However QE3 did not materialise, as the Fed sent across a strong message that they will not intervene unless the US economy comes under a new set of significant pressures. Weighed down by the threat of Central Bank action of its own, the Pound proceeded to decline by around one cent against the Buck.
In all honesty Sterling was living above its means in the build-up to the FOMC’s announcement. The UK CPI headline inflation figure fell from 3.0% to 2.8% in May which suggests that the Bank of England now have a little more room to manoeuvre in their attempts to kick-start the recessionary British economy. The underlying threat of further UK monetary stimulus was made explicit on Wednesday morning as the BoE minutes report detailed a shift from 8-1 against additional easing measures to a narrow 5-4. Since then two MPC members have spoken out to the press in support of affirmative action and it now looks very likely that the asset purchasing fund will be increased next time out.
The Pound grew by a third of a cent following a rebound in UK Retail Sales from -0.3% in April to 3.0% in May; this however was the last positive result for Sterling of any importance and the rest of the week was characterised by risk aversion. Subsequently the US Dollar benefitted from defensive inflows leaving Sterling struggling to make an impact.
This morning saw the first GBP rally in a while as the Pound appreciated by half a cent against the US Dollar in anticipation of Governor Mervyn King’s inflation report speech. However, the upward momentum was curtailed at 1.5620 as a consequence of the worse-than-expected UK Public Sector Net Borrowing figures which came in at £15.580 billion for May, marking a rise of over £1 billion in government debt from this time last year.
Looking ahead and this week is predicted to see US Durable Goods Orders increase, US Q1 annualized GDP hold steady, and US Personal Consumption take a minor hit. UK Business Investment is expected to maintain its current level and so is the UK GfK Consumer Confidence Survey. Swings in risk sentiment will most likely dictate the currency markets as fundamentals take a back-seat.
The 19th EU summit held in Brussels on Thursday and Friday is shaping up to be a key event, with many speculators suggesting that another lacklustre set of talks with no clear outcome will send investors flocking towards the safety of the US Dollar. Under these circumstances it is expected that GBP/USD will take mild losses.
Summary of major upcoming data releases that we think may move the market.
- Sterling Euro US Dollar Foreign Currency Forecast – Sterling is still trading close to 4.5 month lows against the Euro
- Pound Sterling, the Euro and US Dollar Currency News – The Pound struggled to sustain its momentum above 1.65 against the US Dollar exchange rate and dipped sharply through the course of the week to lows close to 1.6350
- The Pound to Euro exchange rate commenced last week’s trading at a 5-week high of 1.2071
- Pound Sterling, the Euro and US Dollar exchange rate forecast – The Pound actually rallied against the Euro for the first time in six trading days
- Sterling Euro US Dollar Foreign Currency Forecast – The Pound is continuing to trade close to 4-month lows against the Euro