Despite climbing to a fortnight-high of 1.2975 on Tuesday, the GBP USD exchange rate trended closer to the week’s opening levels of 1.2882 on Thursday morning due to recent strong US data.
Tomorrow’s upcoming US Non-Farm Payroll report could notably alter the Pound to US Dollar outlook.
Pound (GBP) Supported by BoE Consumer Credit Data
Demand for the Pound has been a little better this week, as investors have bought the undervalued British currency from its lows in reaction to some recent domestic ecostats.
July’s mortgage approvals report improved from 65.32k to 68.69k, beating 65.5k forecasts. Mortgage lending did slip from £4.1b to £3.6b but beat forecasts of £3.5b.
Perhaps the most notable report was July’s Bank of England (BoE) consumer credit report, which slowed from £1351m to £1179m. The figure was forecast to come in at £1500m.
The result indicated that despite the persistent pay squeeze in Britain, consumers were borrowing less. This has been seen as a good sign, which made Sterling more appealing.
GfK’s August consumer confidence survey beat expectations this week too, rising from -12 to -10 rather than worsening to -13 as forecast.
Sterling’s stronger demand may not last though, depending on the results of Markit’s August UK PMIs.
Markit’s manufacturing PMI will come in on Friday, followed by construction and most notably services and composite PMIs on Monday and Tuesday next week.
If manufacturing falls short of expectations, GBP/USD could drop in Friday as Sterling investors would become more concerned about the possibility of services disappointing too.
As services make up a notable chunk of Britain’s economic activity, the services PMI will be the biggest indication next week of how Britain’s economy had performed in August.
If the data beats expectations, GBP USD could advance as investors become hopeful about the resilience of Britain’s economy. However, disappointing services stats could mean GBP USD losses.
US Dollar (USD) Investors Anticipate Non-Farm Payroll Report
The US Dollar has seen stronger demand since Wednesday, when the Q2 US Gross Domestic Product (GDP) projection was unexpectedly revised higher from the initial projection of 2.7%
US growth is now forecast to have grown at around 3% quarter-on-quarter in Q2 2017, well above the Q1 growth figure of 1.2%.
The day’s other US data also beat expectations. ADP’s August employment change report improved from 201k to 237k, beating 183k forecasts. The previous figure was revised higher from 178k.
Q2 personal consumption expenditure estimates fell in line with forecasts, coming in at 0.3%.
Overall, the day’s US data impressed investors and was enough to boost Federal Reserve interest rate hike bets slightly.
Earlier in the week, market bets that the Fed would leave rates frozen until 2018 were over 66%.
Since yesterday however, these bets have fallen to around 57%, with 41% now betting on a Fed interest rate hike in December according to the CME FedWatch tool.
The biggest movement potential for USD trade is still ahead however, as key August Non-Farm Payroll results will come in on Friday.
Analysts predict August’s NFP change figure will have slowed from 209k to 182k, but if they beat expectations GBP USD is likely to fall.
Stronger US job data, particularly in wage growth, would boost hopes that USD inflation will recover and that the US economy will be able to support another Fed interest rate hike within the foreseeable future.
As a result, a worse-than-expected NFP report would have the opposite effect, causing Fed rate hike bets to drop and helping GBP USD to advance.
GBP USD Interbank Rate
At the time of writing this article, the GBP USD exchange rate trended in the region of 1.2880. The US Dollar to Pound exchange rate traded at around 0.7764.
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