The Pound to US Dollar exchange rate (GBP/USD) remained fairly flat during the evening yesterday as traders scoured the Federal Reserve’s Beige Book for signs of monetary policy outlook.
January’s edition of the Beige Book – an anecdotal set of statements from businesses across America – showed that the domestic economy is likely to have continued to grow at a moderate pace in the final quarter of 2013. Additionally, the report suggested that some regions of the US are likely to experience a pick-up in economic output over the next few months, with eight out of the twelve districts reporting improvements in job growth.
The tone throughout the report suggests that December’s low Non-farm Payroll score was likely to have been influenced by the cold weather, rather than it signaling a shift in labour market performance.
Whilst the Beige Book reflected fairly optimistically on US economic prospects, it did not add anything profoundly new to the table, and therefore its impact on US Dollar trading was limited.
Earlier in the day, GBP/USD declined by over half a cent as traders reacted to a tripartite of positive domestic data releases in the United States.
The US Producer Price Index, which measures changes in the prices paid to manufacturers and agricultural producers, rose to its highest level since last June. The monthly PPI figure came in at 0.4%, whilst the annualised score printed at 1.2%.
Additionally, it was reported that MBA Mortgage Applications grew by 11.9% last week as interest rates receded slightly. The mild drop-off in market rates could have been related to the soft US Non-farm Payroll report, which hurt hopes of further stimulus reductions from the Federal Reserve.
The third and final American ecostat that pleased holders of the US Dollar was the New York Fed’s Empire State index of manufacturing output. Improving from +2.22 in December, the business outlook survey came in at +12.51 in January – its highest reading since May 2012. Sub-indexes for new orders, prices paid and employment change all printed optimistically, which helped drive speculation that the Fed could taper its QE3 programme again later this month.
Comments from Fed officials Charles Plosser and Richard Fisher support this view with the former downplaying December’s weak NFP reading and the latter gunning for accelerated reductions of -$20 billion per month.
The most important data release for the GBP/USD pair today is likely to be the US Consumer Price Index. The CPI inflation print is expected to show a 0.3% rise in Consumer prices during December, bringing the index up to 1.5%. If the report comes in as expected it could help bolster taper bets and therefore could prove bullish for the ‘Greenback’.
There are no releases of direct interest to Sterling traders until Friday’s UK Retail Sales report.
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