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Pound Sterling to US Dollar (GBP/USD) Exchange Rate Predicted to Hold Losses despite Disappointing US Data

European Central Bank

GBP/USD Exchange Rate Softens despite Positive British Data

The Pound Sterling to US Dollar (GBP/USD) exchange rate softened by around -0.5% on Thursday afternoon.

Although British economic data produced positive results today the Pound failed to make any significant gains versus its major peers, with the exception of commodity-correlated assets. The lack of appreciation can be linked to increasingly dovish bets regarding the timing of a Bank of England (BoE) interest rate hike. With British wages failing to grow in line with expectations, and with inflation remaining critically low with no sign of a swift pick-up, many futures traders have been forced to delay rate hike bets deep into 2017.

Although the results failed to provoke a Sterling uptrend, today’s British Retail Sales growth will be positively received. November’s Retail Sales and Retail Sales including Auto Fuel bettered estimates on both a monthly and an annual basis. ‘Retailers may see some payback after the Black Friday promotions led shoppers to pull forward spending that would otherwise have taken place in December, but the underlying sales trend looks set to remain strong as we head into 2016,’ stated Chris Williamson, chief economist at Markit.

The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4908.

USD/GBP Exchange Rate Holds Gains after Fed Chief Janet Yellen Strikes Positive Tone

After the Federal Reserve hiked the benchmark interest rate for the first time in nine-years, the US Dollar gained versus its currency rivals. The appreciation has been somewhat slow, however, given that traders had priced-in the move and expected Federal Reserve Chairwoman Janet Yellen to call for a gradual tightening process. Markets were a little surprised by Yellen’s positivity regarding economic progress, however, after she showed confidence that growth will accelerate in 2016.

Today’s US economic data produced mostly disappointing results but the Dollar held gains thanks to confidence that North America will flourish amid tighter monetary policy. Continuing Claims, in the week ending December 5th, came in at 22,380 which was above the median market forecast 22,200 benefits claimants. Another disappointing publication was the Philadelphia Federal Reserve Manufacturing Activity report which unexpectedly contracted by -5.9%.

The Pound Sterling to US Dollar (GBP/USD) exchange rate dropped to a low of 1.4897.

Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast to Hold Losses on Policy Divergence

Given that the BoE is very unlikely to hike the benchmark interest rate before the second-half of 2016, the GBP/USD exchange rate has the potential to hold a weak position through to year-end. Tomorrow’s absence of British economic data is likely to see traders continue to readjust Sterling positions to account for a longer-than-anticipated period of ultra-accommodative policy.

Tomorrow’s US data has the potential to affect changes for the GBP/USD exchange rate, however. The Markit Composite and Services PMIs will be closely watched. Also Federal Reserve Policymaker Jeffrey Lacker will present an economic outlook for 2016.

The Pound Sterling to US Dollar (GBP/USD) exchange rate reached a high today of 1.5009.