Pound Sterling to US Dollar (GBP/USD) Exchange Rate Climbs 0.3%
Although yesterday’s UK house price data showed an increase in property prices, the Pound spent the day drifting lower against the majority of its peers. Sterling registered a daily decline against the US Dollar even as US markets closed for Martin Luther King Jr. Day.
On Tuesday the Pound advanced by over 0.3% against the US Dollar ahead of the publication of the US NAHB Housing Market Index.
While an increase in the measure has been forecast, a disappointing result could help the Pound extend gains against the US Dollar.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trading in the region of 1.5136
GBP/USD Exchange Rate to Trend in Narrow Range
As a new week of trading got underway, the Pound Sterling to US Dollar (GBP/USD) exchange rate was trading in the region of 1.5152.
Given that economic reports for both the UK and US are in short supply today, GBP/USD exchange rate volatility may be limited.
The UK’s Rightmove House Price report had little impact on the pairing in spite of showing an increase in property values.
That being said, investors will be looking ahead to tomorrow’s US NAHB Housing Market Index and speeches to be given by the Bank of England’s (BoE) Jon Cunliffe and the Federal Reserve’s Jerome Powell.
The hawkish/dovish nature of the comments could dictate the direction taken by the Pound Sterling to US Dollar (GBP/USD) exchange rate ahead Wednesday’s UK employment figures.
The US Dollar did soften against the Yen and posted a decline against the Euro as falling Asian stocks stocked demand for the Japanese currency and the fallout from the SNB decision calmed.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is likely to experience volatility next week as the Bank of England (BoE) publishes the minutes from its recent meeting and the UK releases influential jobs data.
GBP/USD Exchange Rate Rebounds after Inflation Dip
While the Pound Sterling to US Dollar (GBP/USD) exchange rate slumped following the publication of the UK’s below forecast non-core inflation figure, the pairing was able to recover ground as various British officials, from BoE Governor Mark Carney to Chancellor of the Exchequer George Osborne, downplayed deflation concerns. The BoE had previously forecast that inflation would fall below 1%, and the current reading of 0.5% was only slightly lower than anticipated.
The appeal of the ‘Greenback’ also ebbed as the week continued in response to a disappointing US retail sales report.
As the US is a consumer driven economy the unexpected -0.9% month-on-month drop off in sales spooked investors, although some remained optimistic about the situation.
Economist Jim O’Sullivan noted; ‘Consumer confidence has continued to rise. All in all, we do not view these data as convincing evidence that the underlying trend in consumer spending is suddenly weakening.’
However, the Swiss National Bank’s (SNB) decision to remove its 1.20 peg with the Euro saw demand for the safe-haven US Dollar go through the roof and the GBP/USD pairing accordingly pared its advance in spite of inflation in the US also slowing below 1%.
US Dollar to Euro (USD/EUR) Exchange Rate Achieves 11-Year High
The shocking SNB announcement also drove the US Dollar higher against the Euro, and the US Dollar to Euro (USD/EUR) exchange rate rallied to an 11-year high.
As stated by currency strategist Brian Daingerfield; ‘One of the reactions from the SNB decision was they knew the ECB will be embarking on monetary-policy expansion. The overarching fundamentals of the Euro story remain in place to push the Euro lower.’
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast: Gains Ahead?
While the fallout from the SNB decision is likely to continue in the days ahead, the currency market may stabilise as the focus returns to the fiscal policy being deployed to the Federal Reserve, BoE and ECB.
That being said, notable Pound Sterling to US Dollar (GBP/USD) exchange rate movement could be inspired by the latest BoE minutes.
While members of the Monetary Policy Committee (MPC) have diverged on the subject of interest rate increases in the last four policy meetings, UK fundamentals have flopped in recent weeks. This, coupled with the continuing downtrend in commodity prices and worsening global economic slowdown, could have caused the two hawkish MPC officials to retract their calls for an immediate increase in borrowing costs.
If that proves to be the case, it would seriously lower the odds of a rate hike occurring in 2015 and the Pound may come under pressure.
That being said, the UK’s employment figures are also due for publication on Wednesday and have the potential to bolster Sterling.
Economists have forecast that the UK economy added 74,000 positions in the three months through November, taking the unemployment rate from 6.0% to 5.9%.
Average weekly earnings are also believed to have surged from 1.4% to 1.7% in the period – well above the current 0.5% inflation rate.
Given that the BoE has placed such emphasis on the importance of improvement in the labour market, results this strong could push the Pound Sterling to US Dollar (GBP/USD) exchange rate to multi-week highs.
However, there are some concerns that plummeting oil prices will have led to massive jobs losses in the sector – a factor which could have a negative impact on the employment numbers.
British Energy Secretary Edward Davey recently said of the situation; ‘The government is determined to do everything we can to work with industry to make sure we can maintain those jobs.’
On Sunday the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending in the region of 1.5148
On Sunday the US Dollar to Pound Sterling (USD/GBP) exchange rate was trending in the region of 0.6602