Pound US Dollar (GBP/USD) Exchange Rate Outlook Supported by April Seasonality
Sterling climbed to a fresh post-Brexit high against the US Dollar this morning, capitalising once again on strong seasonal support in April, progress in Brexit negotiations and anticipation of a rate hike in May.
The Pound tends to appreciate versus the US Dollar in April every year, with the Bank of America Merill Lynch describing this phenomena as the strongest seasonal trend out of Group-of-10 currencies.
This could largely be due to the combination of it being the end/start of the UK tax year and the abundance of dividend payments by UK corporations.
There are, however, a number of other positive factors that could be in play, notably growing rate hike anticipation for the Bank of England (BoE) in May and 2018’s progress made in securing a Brexit transition deal.
Anxieties over US/Syria Military Engagement Temporarily Fade – US Dollar (USD) Demand Returns
Despite falling against the Pound this morning the US Dollar is nonetheless posting a reasonable performance, supported by yesterday’s drop in new jobless claims and general cooling anxieties over the possibility of a US missile strike on Syria.
US President Donald Trump helped ease market concerns that the US might be about to launch a missile strike on Syria targeting government facilities by tweeting that a missile strike could be ‘very soon, or not so soon at all’.
This diminishes the possibility that Russia will be pushed into retaliating, thus making a direct conflict between the west and Russia less likely.
Beyond this, markets were surprised to hear that applications for new jobless claims in the US fell in the latest reading from 242k to 233k, suggesting that the US labour market continues to remain on robust, sustained form.
Investors are also optimistic regarding US corporate earnings, with the first quarter of 2018 expected to mark the best growth recorded since 2011.
If this is confirmed then the ‘Greenback’ could find even more support.
UK Inflation in the Spotlight – What can we Expect for GBP/USD from next Week’s UK Consumer Price Growth Readings?
Next week will feature the UK’s highly anticipated jobless claims, unemployment rate, average earnings and consumer price inflation figures, all spread from Tuesday to Wednesday.
Markets will be paying particularly close attention to these ecostats as they could make or break chances that the BoE will raise its baseline interest rate in May.
If the UK’s labour market continues to remain tightly laced then the GBP/USD exchange rate could continue to climb.
An unexpected drop in wage growth or inflation could raise some eyebrows, however, and provide room for USD to capitalise.