Pound Sterling to US Dollar (GBP/USD) Exchange Rate Fluctuates on Brexit Fears
The Pound Sterling to US Dollar (GBP/USD) exchange rate fluctuated on Thursday as investors responded to declining Federal Reserve interest rate hike bets and growing Brexit fears.
While the GBP/USD pairing did dip to a low of 1.5153, it later advanced by around 0.2% as markets were thrown into chaos by the Swiss National Bank’s shock decision to remove its cap on the EUR/CHF exchange rate.
However, before the close of the European session the Pound Sterling to US Dollar (GBP/USD) exchange rate had fallen back to trend in the region of 1.5187 in spite of the US publishing mixed economic reports.
The US initial jobless and continuing claims figures both came in above expected levels – disappointing news for those hoping for improvement in the US labour market – and the Philadelphia Fed manufacturing index registered a whopping decline from 24.3 to 6.3.
Meanwhile, the US Producer Price Index was better-than-forecast and the Bloomberg Consumer Confidence Index surged to 45.4 – it’s best reading since mid-2007.
In the opinion of industry expert Gary Langer; ‘Views of the national economy have advanced the most dramatically. The advance in consumer sentiment mirrors other positive economic developments, including strong GDP growth and an expanding job market.’
Tomorrow’s US Consumer Price Index is likely to have a profound impact on Pound Sterling to US Dollar exchange rate trading.
GBP/USD Exchange Rate Trends Higher
While the Pound Sterling to US Dollar (GBP/USD) exchange rate still looked set to close out the European session trading in a stronger position, the pairing trimmed its daily advance to 0.3% as investors speculated on whether or not the disappointing US ecostat would prevent the Federal Reserve from adjusting borrowing costs.
As one industry expert noted; ‘There’s some differences in opinions on whether the Fed can raise rates in the middle of this year. But we’re not at the point where the foreign-exchange market is pushing back the strong-Dollar theme.’
The pairing was trading in the region of 1.5219
GBP/USD Exchange Rate Jumps 0.6%
After trending in a fairly narrow range for much of the European session, the Pound Sterling to US Dollar (GBP/USD) exchange rate surged to a high of 1.5260 following the publication of advance retail sales figures for the US.
Rather than posting the modest -0.1% month-on-month decline anticipated by economists, US retail sales were shown to have plummeted by -0.9% on the month.
Although the decline in oil prices will have had some impact on the figures, the sales data indicates that consumer spending is flagging and supports the case in favour of delaying an increase in borrowing costs until the second half of the year.
According to an article published by the Associated Press; ‘The figures suggest that stagnant wages are still weighing on many Americans. Average hourly pay slipped in December, the government said last week, and rose just 1.7% last year. That’s only slightly ahead of the 1.3% inflation rate. Retail sales figures for October and December were also revised lower, which could deal a blow to growth in the final three months of the year. Many economists had forecast that strong consumer spending would push growth in the fourth quarter above a 3% annual rate.’
The US Dollar also dropped against the Euro (USD/EUR) and Canadian Dollar (USD/CAD).
The Pound Sterling to US Dollar (GBP/USD) exchange rate was trading in a slightly stronger position on Wednesday, up 0.2% on the day’s opening levels, as economists looked ahead to the upcoming US retail sales report.
GBP/USD Exchange Rate Recovers from Inflation Blip
On Tuesday the Pound Sterling to US Dollar (GBP/USD) exchange rate tumbled by over 0.5% in response to a shockingly low UK Consumer Price Index.
The pace of inflation had been expected to ease from 1.0% to 0.7% in December, but falling oil prices helped push the figure to 0.5% – an over fourteen year low.
However, Sterling reversed initial declines as economists fixated on the positive aspects of the report, such as the fact that the slide in price pressures could boost consumer spending.
The Pound Sterling to US Dollar (GBP/USD) exchange rate hit a low of 1.5142
Chancellor of the Exchequer George Osborne also noted that low inflation, or even deflation, should not be feared by the UK.
In a transcript of a speech to be given at the Royal Economic Society Osborne states that in the Eurozone ‘the debate has understandably turned to the dangers of deflation – the risk of a self-reinforcing spiral where economic activity falters, consumers defer purchases as prices fall and nominal debt burdens become ever harder to manage. Rising real incomes, a recovery spreading to all parts of our economy, and family budgets that can stretch that little bit further – let’s celebrate these effects of low inflation, not fear them’.
The Pound Sterling to US Dollar (GBP/USD) exchange rate achieved a high of 1.5224
Before the close of the European session the Pound had returned to trading around the day’s opening levels against the US Dollar.
The pairing was little affected by the US JOLTS job applications and NFIB Small Business Optimism reports printing above expected levels.
US Rate Hike Questioned by Fed Official
The Pound Sterling to US Dollar (GBP/USD) exchange rate was also able to trend in a stronger position thanks to dovish comments from Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis.
Kocherlakota asserted that the recent improvement in the US labour market would have more chance of continuing if the Federal Open Market Committee (FOMC) refrained from increasing borrowing costs in 2015.
These comments had a limited impact on the US Dollar however as they merely reiterated statements made by the central banker earlier in the year.
On January 8th Kocherlakota was quoted as saying; ‘Raising the target range for the Fed funds rate in 2015 would only further retard the pace of the slow recovery in inflation’.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast
In the hours ahead the Pound Sterling to US Dollar (GBP/USD) exchange rate could extend gains if the US Advance Retail Sales report shows the forecast monthly decline of -0.1%.
An even steeper drop, or a negative revision to November’s figure of 0.7%, would push the Pound higher still.
Investors will also be taking an interest in the MBA Mortgage Applications number and Business Inventories data.
Additional GBP/USD exchange rate movement may be caused by Bank of England Governor Mark Carney’s testimony to lawmakers and the publication of the US Federal Reserve Beige Book.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.5193
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2880
The US Dollar to Euro (USD/EUR) exchange rate is currently trending in the region of 0.8477
The Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.1795