Foreign Currency Market Update – GBP / USD Update
Over the past week the Pound has struggled to make any inroads against the US Dollar with the pair trading in a choppy range between 1.5980 and 1.6100. Sterling declined by around 1.2 cents early Monday morning as markets continued to digest the previous week’s US Non-farm Payrolls print, which showed far better job growth in July and August than first estimates suggested.
GBP/USD broke below 1.6000 for the first time in almost a month on Tuesday as a shift in market sentiment saw the Pound become vulnerable to further quantitative easing measures. Sterling fell to 1.5977 against the ‘Greenback’ as soft UK Industrial and Manufacturing Production figures, plus a widening of the UK Trade Balance, added to the weak growth prospects of the British economy that were first flagged up by September’s weak PMI results.
On Wednesday the Pound remained in close contact with the US Dollar as the Federal Reserve released their latest Beige Book, which revealed that the US economy expanded at a modest pace since their last report in August.
On Thursday Sterling posted a daily gain of around 0.4 cents as the US Weekly Jobless Claims figure fell to its lowest level in over 4 years of 339,000, which brought about a temporary rise in risk appetite and subsequently benefitted the Pound against the safe haven US Dollar.
Sterling improved by a further 0.4 cents on Friday as the US Producer Price Index figure, excluding food and fuel costs, declined slightly in September, which encouraged the Fed to continue with their latest monetary easing programme.
Looking ahead at this week’s schedule and the headline UK CPI inflation figure is expected to fall, slightly, US Consumer Price Index is predicted to rise gradually and UK Jobless Claims are likely to face a minor decline.
The direction of the Pound to US Dollar exchange rate will depend upon how investors decide to interpret the outlook for the two nations’ Central Banks. The Bank of England are growing increasingly concerned with inflation forecasts and if BoE policymaker Martin Weale’s comments – that QE is not compatible with the current target rate of inflation – are anything to go by, then Wednesday’s Minutes report could point towards a more relaxed approach to monetary stimulus from the BoE, and this would benefit the Pound.
Rumours have also surfaced that the Federal Reserve could put a floor on their, currently open-ended, mortgaged-backed security programme of, either Consumer Price Index rising to 3% or, the Unemployment Rate falling to 7%. Neither of these two scenarios are likely to happen in a hurry, and for this reason it is entirely possible that the US Dollar could be subject to a further $40 billion in currency dilution on a monthly basis for the foreseeable future.
If the Bank of England decide to continue with their easing cycle in November, and this is hinted at in their latest Minutes report, then we could see GBP/USD decline towards 1.5912. However it is more likely that QE-based decisions will go in Sterling’s favour – no more for UK, more for the US – and under these circumstances a break above 1.6140 could lead to a run towards 1.6300 for the Pound against the US Dollar.
Summary of major upcoming data releases that we think may move the market.
- 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 Canadian Dollar struggled to re-assert itself in the currency markets
- Pound Sterling, the Euro and US Dollar exchange rate news flash – The Pound failed to make any headway against the U.S Dollar yesterday
- Sterling has managed to make new highs four weeks on the trot
- The Pound continued to make strong gains versus the Euro