Economic data is thin on the ground this week which is likely to allow the US Dollar to strengthen as it benefits from its status a safe haven currency.
Foreign Currency Market Update – GBP / USD Update
The Pound has declined from its 8-month high against the US Dollar over the past week, as April’s PMI results showed a slight slowdown in the UK economy from March’s exceptionally strong figures.
Sterling lost half a cent to the US Dollar last Monday as the UK’s manufacturing index took a pummelling from the US print. The downward trend continued throughout the week as the Pound suffered from a fall in UK Nationwide house prices by 0.9% on the year, and the US Dollar gained from a drop in the US Unemployment rate from 8.2% to 8.1%.
GBP/USD broke below an important resistance level at 1.1680 before markets closed for the weekend which suggests that momentum may now be swinging away from the Pound. Sterling can expect to find key support at 1.6075 but if this defence is breached then a bearish move back towards 1.5800 is looking increasingly possible.
Economic data is thin on the ground this week which is likely to allow the US Dollar to strengthen as it benefits from its status a safe haven currency. Manufacturing Production is expected to fall slightly in the UK as is the Trade Balance in the US. However, the main releases to look out for come from the Bank of England as they announce whether or not they plan to modify their stance on interest rates and quantitative easing. Considering the Central Bank’s bias towards turning the UK into an export-led economy further QE cannot be ruled out, especially given the Pound’s recent rallies against the Euro, however the BoE remain committed to holding interest rates at the current ultra-low rate of 0.50% until 2014, so any change there would be a huge surprise. If the MPC announce an increase in their asset purchasing fund then expect the Sterling/US Dollar’s downward trend to continue. It would take some powerful positive rhetoric to reverse Sterling’s descent, but any break back above 1.6300 would signal renewed impetus towards higher GBP rates.
Summary of major upcoming data releases that we think may move the market.
- The Pound declined from an 8 month high against the U.S Dollar
- The Pound declined from a 22-month high against the Euro yesterday
- The Pound has pushed to a five month high against the U.S Dollar and achieved a fresh 19-month high versus the Euro
- The Pound rallied to a fresh 9-month high above 1.19 against the Euro exchange rate
- The Pound to US Dollar exchange rate reached a four month high on Tuesday