The GBP to USD Exchange Rate softened on Monday after foreign exchange traders pared their bets on the Pound’s recent strong run of gains, the currency softened as investors embarked on a bout of profit taking.
The Pound advanced to its best level in more than five years this month spurring some economists to suggest that further gains could be restrained.
According to the US based Commodity Futures Trading Commission bullish bets on the Pound made by hedge funds and other speculators fell last week from the highest level seen since 2007.
The drop was likely to have been a result of last week’s worse-than-forecast manufacturing and construction output data.
According to the data construction output fell by 1.1% in May, the largest fall recorded since February and manufacturing production dropped by 1.3% also in May.
The disappointing data prompted investors to pare back their long positions on the UK currency, but losses were held in check as the data had little impact on expectations that the Bank of England will hike interest rates before the end of the year.
Last Thursday saw the Bank of England leave interest rates on hold at 0.5% and maintain its asset purchasing programme at £375 billion.
‘The only question is whether there are reasons to curtail the long positions on the Pound. Probably not yet, though it would be sensible for investors to raise the threshold at which they’d end bets on sterling’s advance, known as stop-losses, closer to the current market rates. Generally recent data has been good,’ said a senior currency analyst at London based Commerzbank AG.
Investors will be looking ahead to Tuesday’s Congressional testimony by Federal Reserve Chairman Janet Yellen for direction on the ‘Greenback’. They will be looking for signs that the Central Bank is considering a hike in interest rates as last week they were disappointed by the lack of information in the Fed’s June policy meeting minutes.
A disappointing testimony will likely see the US Dollar soften against the Pound and other major peers.
UPDATED: 09:45 GMT 15 July 2014
UK Inflation Gain Bolsters Pound
Although the US Dollar began trading on Tuesday in a slightly stronger position as investors focused on today’s US Advance Retail Sales figures, the Pound to US Dollar exchange rate was able to jump by over 0.3% in response to the UK’s surprisingly strong Consumer Price Inflation report.
An unforeseen 0.2% monthly increase in the consumer price index in June saw the UK register a 1.9% annual increase.
As the Bank of England’s annual inflation target is 2% this result was Pound supportive and the British asset rallied against the majority of its most traded currency counterparts.
Later today the Pound to US Dollar exchange rate could pare gains if US Advance Retail Sales are shown to have increased by 0.6% as forecast.
That being said, a dovish testimony from Federal Reserve Chairwoman Janet Yellen could wear on the ‘Greenback’ during the North American session.
US Dollar (USD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
US Dollar,
,Pound Sterling,0.5855 ,
US Dollar,,Euro,0.7341 ,
US Dollar,,Canadian Dollar,1.0727 ,
US Dollar,,Australian Dollar,1.0642 ,
Pound Sterling,,US Dollar,1.7078 ,
Euro,,US Dollar,1.3623 ,
[/table]
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