USD Recovers from Lows, GBP to USD Exchange Rate Slips

February 6, 2017 - Written by John Cameron

STORY LINK USD Recovers from Lows, GBP to USD Exchange Rate Slips

The British Pound to US Dollar exchange rate continued to trend at its worst levels in over a week on Tuesday afternoon due to the hawkishness of Federal Reserve officials and the latest Brexit concerns.

GBP/USD slightly held away from its weekly lows towards the end of the day’s European session thanks to comments from Bank of England (BoE) hawk Kristin Forbes, who stated that she would vote to hike UK interest rates to stop inflation from getting too high.

[Previously updated 07/02/2017]

The Pound to US Dollar exchange rate slumped in response to comments from Philadelphia Fed President Patrick Harker, who indicated that an interest rate hike could come as soon as March.

Sterling generally weakened, meanwhile, as MPs failed to pass amendments to the government’s Article 50 bill guaranteeing a greater degree of involvement for Parliament and the devolved assemblies.

[Previously Updated 06/02/2017]

The British Pound to US Dollar exchange rate trended tightly on Monday morning but generally trended with a downside bias as the US Dollar strengthened following last week’s selloffs.

While the Pound plunged against most currency rivals last week, it saw more modest losses against the US Dollar. GBP/USD slipped from 1.2549 to 1.2484 throughout the week.

GBP Attempts Limited Recovery after Last Week’s Disappointments

Some traders bought the Pound up from its lows on Monday morning but GBP/USD still trended largely flatly as the US Dollar’s movement was similar (and bigger).

Sterling traders were still largely disappointed after last week’s session in which the Bank of England (BoE) indicated that better-than-expected growth and above-target inflation would still not lead to tightened monetary policy in the foreseeable future.

Then, on Friday, Sterling was weakened further by Markit’s January services PMI for the UK. Services unexpectedly slowed far more than predicted, increasing concerns that UK growth would slow considerably in the coming year.

USD Bought from Lows after Fed Selloff

The US Dollar plunged for its fourth consecutive week against a basket of currencies last week, its worst start to a year in over 30 years.

It was able to advance against the Pound last week largely due to the Pound’s own broad weakness, but a drop in Federal Reserve interest rate hike bets weighed on the US Dollar considerably last week.

First of all, the Federal Open Market Committee (FOMC) offered no new details on its monetary policy outlook in its meeting last week. Then, January’s US Non-Farm Payroll results indicated that wage-growth in the US was far slower than expected.

As a result, bets of a March Fed rate hike slipped from 20% to just 12%.

GBP/USD Forecast: ‘Greenback’ Recovery Likely to Continue if US Data Impresses

Recent US data has been largely impressive despite hiccups in January’s Non-Farm Payroll report, so if US data can continue to impress this week it’s unlikely the Pound to US Dollar exchange rate will see a notable recovery – if any.

UK data this week is unlikely to give the Pound any fresh or significant support either. Investors will largely be focused on Brexit developments due to Britain’s relatively quiet economic calendar for the week.
The UK House of Commons will meet on Wednesday to hold another vote on Article 50, which is widely expected to go smoothly and pass the bill onto the House of Lords for further scrutiny.

With the Brexit process slowly but surely approaching, Pound demand may be limited.

As for the US Dollar, this week’s US trade balance and confidence figures from the University of Michigan are likely to influence USD movement. A boost in US confidence in particular will increase demand for the US Dollar towards the end of the week.

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