Increase in Fed Rate Hike Bets Sends USD/GBP to Multi-Week Best

March 2, 2017 - Written by Minesh Chaudhari

STORY LINK Increase in Fed Rate Hike Bets Sends USD/GBP to Multi-Week Best

The US Dollar to Pound exchange rate continued to advance on Thursday morning as investors were unimpressed by this week’s UK data. The US Dollar was able to capitalise thanks to hawkish Fed official comments boosting Federal Reserve interest rate hike bets.

USD/GBP began the week trading at the level of 0.8021 and has since gained over a pence in value. Thursday’s high of 0.8155 was the best USD/GBP level since the 16th of January.

USD Benefits from Jumps in Federal Reserve Interest Rate Hike Bets

The US Dollar has seen a significant increase in strength this year as investors became increasingly confident about the outlook for the US economy in the year ahead.

Despite market frustration about the uncertainty of US President Trump, traders were easily placated on Tuesday night by Trump’s Presidential tone in his latest speech, as well as his reiteration of intentions to pump 1$trillion into infrastructure reforms.

This week has also seen multiple hawkish comments from respected Federal Reserve officials, such as New York Fed President William Dudley and Dallas Fed President Robert Kaplan.

These factors, as well as Wednesday’s news that the latest US manufacturing PMI from ISM had impressed with a figure of 57.7 in February, led to March Fed rate hike bets jumping from 30% to almost 70% this week alone.

GBP Limp as Traders Await Key Services PMI Results

The Pound has been weighed down by UK ecostats this week, particularly February’s manufacturing PMI from Markit which was published on Wednesday.

UK manufacturing unexpectedly worsened from 55.9 to 54.6 in February, despite being predicted to only slip to 55.6. This increased concerns that British manufacturing was beginning to see a long-term slow that would dent UK growth in 2017.

It also increased concerns that other UK economic sectors were beginning to see slows in activity.

Britain’s February construction PMI beat expectations however, improving from 52.2 to 52.5 and beating projections that it would remain at 52.2.

However, as investors awaited Friday’s UK services data the Pound was unable to benefit from construction news. Services are Britain’s biggest economic sector which account for a significant portion of the nation’s GDP.

USD/GBP Forecast: UK Services Figures in Focus Before Weekend

The US Dollar to Pound exchange rate could shed some of its gains by the end of the week if Britain’s key February services PMI from Markit beats expectations.

January’s UK retail sales results increased concerns that the UK retail sector would suffer throughout 2017 as citizens struggled to cope with jumps in consumer prices. However, these worries could fade if services data beats expectations.

While USD/GBP is still likely to end the week higher due to high Federal Reserve rate hike bets, a stronger Pound could see it fall from these highs.

UK services are predicted to slip from 54.5 to 54.1. Markit’s composite print is predicted to actually improve from 55.5 to 55.6.

Unless something happens to undermine Fed rate hike bets however, the US Dollar is likely to remain sturdy for the remainder of the week and will likely hold at least some of its gains.

Friday’s US non-manufacturing PMI from ISM is predicted to remain at 56.5 in February, but if it comes in well below expectations this could also lead to a drop in USD/GBP.

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TAGS: Daily Currency Updates Dollar Pound Forecasts