After firming earlier in the day, the Pound US Dollar exchange rate tumbled towards the end of Tuesday’s European session. GBP USD hit a low of 1.2837, its worst level since late June.
The Bank of England’s (BoE) Deputy Governor of Monetary Policy, Ben Broadbent, focused his speech on the struggles Britain’s trade and economy could face following the Brexit process.
As he avoided the topic of monetary policy, analysts felt this indicated he had not changed his view – at least not yet. This, as well as poor UK ecostats over the last week, caused BoE tightening bets to plunge.
The Pound outlook is now lower, but US Dollar weakness could limit its losses depending on comments from Federal Reserve officials in the coming weeks.
[Published 10:26 BST 11/07/2017]
Since tumbling at the end of last week, the Pound US Dollar exchange rate has largely trended below the key level of 1.29. This has been due to poor UK data, but hawkish comments from central bankers could boost the pair again this week.
GBP USD has trended near the level of 1.2888 for most of the week so far, but tested highs of 1.2913 on Tuesday morning ahead of the day’s central banker speeches.
Pound (GBP) Could Rise if Bank of England (BoE) Officials are Hawkish
In recent weeks, Pound investors have been excited by surprisingly hawkish comments from usually dovish Bank of England (BoE) policymakers.
High-ranking officials such as Governor Mark Carney and chief economist Andy Haldane have indicated in the last few weeks that British monetary policy may need to be tightened in the foreseeable future depending on the resilience of the domestic economy.
As a result, Pound investors were highly disappointed by last week’s UK datasets, which indicated Britain’s economy may already be slowing as Brexit and political uncertainties take hold on businesses.
Britain’s trade deficit deepened, while manufacturing production, industrial production and construction output unexpectedly shrank in May.
This led to last week’s GBP USD losses. Now investors wait for further forward guidance from Bank of England (BoE) policymakers as well as BoE officials who have yet to comment on their monetary policy views.
Tuesday will see speeches from the BoE’s Andy Haldane, as well as Ben Broadbent. As Broadbent has yet to be clear on his monetary policy thoughts, this is being seen as a highly important speech for Pound traders.
If Haldane remains hawkish and if Broadbent is hawkish too, the Pound could surge as investors hope Britain’s economy is still resilient enough to support tighter monetary policy.
However, if the officials express concern about Britain’s latest ecostats, the Pound could weaken further as Bank of England (BoE) tightening bets fade.
Wednesday’s data will have a big effect on the Pound US Dollar exchange rate too. Investors will be focused on UK wage growth stats. If they disappoint, the long-term Pound outlook will worsen.
US Dollar (USD) Traders Await Fed Chair Yellen’s Testimony
As with the Pound, US Dollar traders are awaiting further forward guidance before making any big moves on the US currency.
Recent US data has been relatively sturdy and last week’s Non-Farm Payroll data was enough to indicate the US economy remained solid. However, bets of a third 2017 Federal Reserve interest rate hike are still just around 50%.
US data has not been consistently impressive enough to boost Fed rate hike bets much higher, with investors still concerned that US inflation could slow in the coming months.
As a result, investors are highly anticipating Wednesday’s session, when Federal Reserve Chairwoman Janet Yellen will testify before US Congress.
If Yellen takes a hawkish tone towards monetary policy or even indicates how soon markets can expect further action on US interest rates to be taken, the long-term US Dollar outlook would strengthen.
Key US data will be published later in the week which could also impact the US Dollar outlook – particularly June’s US inflation results.
If inflation continues to fall short of expectations, markets will become increasingly concerned that the US economy may not be able to support a third Fed interest rate hike before the end of the year.
GBP USD Interbank Rate
At the time of writing this article, the Pound US Dollar exchange rate trended in the region of 1.2900. The US Dollar to Pound exchange rate traded at around 0.7745.
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