- Pound Sturdy after Bullish Week – Looks to sustain weekly gain despite stumble
- British Consumer Confidence Decent – Edges closer to positive result
- US Dollar Firms Ahead of Data – Thursday’s reports cause little movement
- Forecast: Fed’s Yellen Speaks This Afternoon – All eyes on the Fed Chairwoman
The Pound Sterling to US Dollar (GBP/USD) exchange rate continued to slip on Friday morning as investors geared up for US data due later in the day and British data did little to impress. However, GBP has largely held its ground despite poor UK data and strong US goods trade.
Still relatively close to its weekly high of 1.4732, GBP/USD has since slipped to around 1.4652 and fluctuates around Friday’s opening levels. The pair looks to gain around 130 pips throughout the week unless the US Dollar surges on Fed rate hike bets on Friday afternoon.
Pound (GBP) Drops on Mediocre Data
Sterling failed to regain much height against the US Dollar on Friday morning. With investors already settling their positions on lowered ‘Brexit’ bets earlier this week, Britain’s decent-at-best data from Thursday and Friday dampened Pound sentiment.
Britain’s key preliminary Q1 Gross Domestic Product (GDP) report was released on Thursday morning, scoring an expected 0.4% quarter-on-quarter.
The yearly score was less impressive however, with the initial estimate of 2.1% being revised to 2.0%. This was accompanied by poor news from other sectors, including the BBA’s April loans for house purchase report which indicated a drop from 43,854 to 40,104.
Business investment also disappointment markets due to the revelation that investments had entered contraction for the first time in three years. Due in part to concerns over a potential ‘Brexit’ in June, business investment was down -0.4% year-on-year, despite the previous figure being a sturdy 3.0%.
As reported by The Guardian on Thursday;
‘Chris Williamson, chief economist of financial data provider Markit, said the UK economy presented a veneer of good health that masked “an unbalanced economy and a slowing pace of expansion, with the annual rate of growth slipping to the weakest for almost three years”.
… Williamson said he was concerned that the pace of economic growth this coming year could easily slow further from last year’s 2.2% expansion.
He said the chances were growing that the Bank of England would be forced to shelve plans for a first interest rate rise since the financial crisis, leaving base rates at the record low of 0.5% well into 2017.’
Despite this, Sterling may have firmed slightly due to Friday’s GfK consumer confidence survey. The survey was expected to indicate that confidence had worsened from -3 to -4 in May, but instead the figure narrowed to -1.
US Dollar (USD) Investors Wait to Move after Thursday’s Mixed Durable Goods Orders
While the US Dollar has strengthened recently due to an increase of hawkish attitudes from Federal Reserve policymakers, the potential risks of a June interest rate hike – including ‘Brexit’ concerns, have weighed on the hopes of ‘Greenback’ investors.
Thursday’s session saw the release of thoroughly mixed US data, which saw little change in the US Dollar as investors decided to wait for Friday’s highly anticipated news before moving on the currency.
Included in the Thursday slew was the highly anticipated durable goods orders report. Figures improved from 1.9% to a high 3.4% in April, well above forecasts of 0.5%. However, as the result was due to a surge in citizen air fare purchases – a typically volatile market – investors did not react bullishly to the news.
Other mixed data included jobless claims information. While the amount of new claims was a lower-than-expected 268k, the amount of continuing claims worsened from 2153k to 2163k despite being forecast to improve to 2142k.
Pending home sales were optimistic, only slowing from 3.2% to 2.9% despite expectations of a drop to 0.2%.
Unfortunately, the US Dollar’s chances of gaining were ultimately held back by worsening business investment. According to the ABC;
‘Economists said a third straight decline in the business investment area was troubling.
“The consumer seems to be spending freely, but business investment in the economy’s future is not so hot right now,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. “The economy is not firing on all cylinders if business investment spending in capital equipment is so weak.”’
The US Dollar’s movement was also muted due to anticipation for Friday’s upcoming US trade session.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast: Will Yellen Speak on Monetary Policy?
Much of the forex market’s attention will be drawn to the United States this afternoon, as Federal Reserve Chair Janet Yellen is due to speak at Harvard’s Radcliffe Day.
As the event is a celebration rather than a speech on monetary policy, markets remain wary of whether or not Yellen will discuss the chances of a June interest rate hike.
However, with other Fed policymakers adopting a hawkish tone in speeches over the last two weeks, investors are highly anticipating the Chairwoman’s first public speech in a while. If she speaks about monetary policy with a hawkish tone, the US Dollar will likely soar and could even erase the Pound’s bullishness from earlier in the week.
Other US data due on Friday afternoon includes the latest Gross Domestic Product (GDP) report, which is currently expected to improve from 0.5% to 0.9%. Personal consumption data is also due and forecast to rise from 1.9% to 2.1%.
Pound movement will likely continue to quieten unless considerable news comes out regarding the ongoing ‘Brexit’ debates. With Britain observing a bank holiday this coming Monday, and with no key UK data until next Thursday, Sterling trade will rely on the potential of ecopolitical news.
The Pound Sterling to US Dollar (GBP/USD) exchange rate currently trends around 1.4652 while the US Dollar to Pound Sterling (USD/GBP) exchange rate trends in the region of 0.6822.
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